Crypto Has An Inflation Problem
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‘Token bloat’ is back in the news with Ethereum taking heat for letting its Layer-2 networks issue tokens without regard for transaction volumes.
There’s a name for it when you top-up a money supply to accommodate more users: inflation. Crypto experts say it’s devaluing tokens while destabilizing the blockchains they live on.
Ethereum took a big deflationary step in 2022 when it moved to proof-of-stake (PoS). Now the issue has flared up again, and competitors see an opportunity. Solana, Celestia, and NEAR are all moving to tame token bloat and close the growing gap between prices and usage on their networks.
Shrinking token supply will enhance asset value, improve network stability, attract investors – and ease speculative selling pressure – or so the thinking goes.
Is inflation fighting the key to blockchain leadership?
When token issuance goes unchecked
Crypto VC Nic Carter took to X recently to lambaste the Ethereum community’s passive acceptance of unchecked token creation on Layer-2 networks. ETH, he said, was “being buried in an avalanche of its own tokens. Killed by its own hand.”
Carter was replying to a bleak assessment by Lekker Capital founder Quinn Thompson, who posted that Ethereum was “completely dead” in investment terms.
Thompson detailed the number two blockchain’s declining transaction activity, reduced user growth, and sliding revenues. Regardless of its utility as a development platform, he believed the investment case for Ethereum had evaporated.
In light of ETH’s recent rally, that may seem overheated. But the criticisms clearly struck a nerve.
What causes token bloat?
Token inflation happens when an issuer increases the supply of tokens in the market. It literally means creating more out of thin air – something crypto enthusiasts …
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