The Ethereum blockchain went through its highest inflation period in the last quarter, with approximately 110,000 Ethereum (ETH) added to the total supply. This equates to an annual inflation rate of 0.37%, according to a recent report by Fidelity Digital Assets.
Analysts Daniel Gray and Max Wadington suggest that ETH supply is unlikely to experience dramatic fluctuations in the short to medium term, but the growing preference for lower-fee layer 2 platforms and increased demand for staking could lead to more frequent inflationary quarters.
The network has seen a 5% increase in the number of validators since April, and the recently implemented restaking could further increase staking demand.
Following the Dencun upgrade in the first quarter, Fidelity highlighted impressive adoption of its layer 2 platforms. Transactions on these platforms have increased by approximately 20%, indicating a positive future for the Ethereum network. Layer 2 platforms are separate blockchains built on top of the underlying blockchains, namely layer 1s.
Ethereum is currently trading approximately 67% above its realized price of $2,050 at the end of the second quarter. This is the highest price seen since inception, although it remains well below ETH's 2021 high. The realized price aims to capture the average cost basis of all current ETH holders.
Fidelity noted that this may indicate that investors are more comfortable allocating funds to ETH compared to the 2021 highs.
Despite a strong start to the year, the fundamentals of the Ethereum base layer declined in the second quarter. Monthly new addresses decreased by 16%, active addresses decreased by 14%, and transaction numbers decreased by 9%.
However, as the tier-2 ecosystem continues to evolve, the impact of tier-1 metrics on valuation is expected to diminish, according to the report.
*This is not investment advice.