Fidelity noted that the Ethereum network experienced its highest period of inflation in the second quarter.

Layer 2 transactions increased 20% since the Dencun upgrade in March, the report said.

Ethereum’s base layer fundamentals declined in the quarter, Fidelity said.

The Ethereum blockchain experienced its highest period of inflation in the last quarter with about 110,000 ether (ETH) added to the total supply, equivalent to an annual inflation rate of 0.37%, Fidelity Digital Assets said in a report last week.

“While dramatic fluctuations in ether’s supply are unlikely in the short- to medium-term, the growing preference for lower-fee layer 2 platforms and increasing staking demand suggests that inflationary quarters may become more frequent,” analysts Daniel Gray and Max Wadington wrote.

The network’s validator count has increased 5% since April, the report said, and the recent introduction of restaking could further add to staking demand.

Ether spot exchange-traded funds (ETFs) will become available for trading in the U.S. for the first time later Tuesday. While their introduction will broaden access to the cryptocurrency, some prominent firms have cautioned that initial demand for these spot ETFs could be less than expected.

Following the Dencun upgrade in the first quarter, Fidelity notes that the “adoption of layer 2 platforms has been impressive,” with layer-2 transactions increasing around 20% and that success could be a positive indicator for the future of the Ethereum network. Layer 2s are separate blockchains built on top of the base blockchains, or layer 1s.

Ether is currently trading about 67% above its so-called realized price, which was $2,050 toward the end of the second quarter, the note said. That’s the highest since inception despite the fact that ETH remains well below its 2021 highs. The realized price is a measure that tries to capture the average cost basis of all current ETH holders. Ether was trading around $3,526 at publication time.

This could indicate that “investors are more comfortable allocating to ether as compared to the highs of 2021,” Fidelity said. After a strong start to the year, Fidelity notes that the Ethereum base layer’s fundamentals all declined in the second quarter. Monthly new addresses dropped 16%, active addresses fell 14% and transaction counts shrank 9%.

Still, as the layer-2 ecosystem continues to flourish, the “influence of layer 1 metrics on valuation is expected to diminish,” the report added.

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