What Happens If ETH Stops Being Deflationary And Xrp Becomes The...

Since Ethereum’s Merge update in 2022, the network’s transition to a deflationary model has steadily reduced the supply of Ether (ETH), increasing its scarcity and reinforcing long-term investor confidence.

The reduced supply has elevated ETH beyond a simple utility token, positioning it as a potential store of value within the broader cryptocurrency ecosystem. In contrast, XRP (XRP) has carved out a distinct role as a bridge asset, facilitating instant cross-border liquidity for banks and global payment networks.

However, if ETH’s deflationary rate slows, its scarcity advantage could weaken. In the scenario XRP emerges as the leader in global liquidity flows, a significant shift may follow. Such a reversal could reshape the dynamics of the cryptocurrency sector. It could influence institutional adoption, payment systems, market valuations, competitive positioning and the broader future of blockchain-based finance.

Did you know? Ethereum introduced smart contracts in 2015, paving the way for decentralized applications (DApps), non-fungible tokens (NFTs) and the broader decentralized finance (DeFi) ecosystem.

ETH’s deflationary nature originates from Ethereum Improvement Proposal (EIP) 1559, which introduced a fee-burning mechanism. Under this system, a portion of each transaction’s base fee is permanently removed from circulation rather than distributed to miners or validators.

During periods of high network activity, the amount of ETH burned can exceed the ETH issued as staking rewards, leading to net deflation. This trend, which intensified after the 2022 Merge, has steadily reduced the total supply of ETH.

As users increasingly adopt layer-2 solutions, such as Arbitrum and Optimism, transaction activity on the Ethereum mainnet has declined. This has resulted in lower gas fees and reduced burn rates. At the same time, validator rewards have increased, boosting the issuance of new ETH.

If the burn rate continues to fall while staking rewards remain high, ETH could gradually turn inflationary again. Such a shift may weaken its scarcity-driven value proposition. It could help stabilize prices in the short term but undermine Ether’s long-term position as a deflationary store of value.

Did you know? In 2022, Ethereum transitioned from proof-of-work to proof-of-stake, reducing its energy consumption by more than 99%.

XRP’s advantage lies in its role as a liquidity bridge for banks, fintech firms and global payment providers. Through RippleNet and its

Source: CoinTelegraph