Ethereum
Ethereum burn rate drops 67% in Q2
ETH supply is now at its highest level since December 2023.
Ethereum’s deflationary narrative appears to be in jeopardy.
Q2 2024 saw Ethereum’s highest quarterly inflation rate since the networks moved to Proof of Stake consensus via Fusion in September 2022, according to a new quarterly web3 report from CoinGecko.
The report notes that 120,800 ETH were added to Ethereum’s supply ($421.3 million) after only 107,725 of the 228,500 newly issued coins were removed by Ethereum’s basic transaction destruction mechanism in the second quarter.
This trend resulted in a 66.7% drop in Ethereum’s quarterly burn rate, with the network experiencing a deflationary trend for just seven days in Q2, compared to 66 days in Q1.
Ethereum burn rate. Source: CoinGecko.
Low gas costs
Ethereum’s burn rate drop was driven by a wave of very low gas prices, with the network currently charging just 3 gwei for a typical transaction, according to Ultra Sound Money. Last month, fees dropped to their lowest level. the lowest level since 2020 briefly tagging 1.9 gwei.
Ethereum supply is now over 120.2 million for the first time since early December, after switching to inflation in early April. ETH supply is now increasing by 50,000 to 60,000 ETH each week. ETH supply remains down nearly 293,000 since TheMerge.
This trend represents a double-edged sword for Ethereum, with low transaction fees paving the way for greater adoption of the network and addressing one of the main criticisms leveled against the network since on-chain activity took off with the emergence of DeFi Summer in 2020.
However, many investors were drawn to Ethereum because of its deflationary promise post-merge, with 2022 fee and transaction data suggesting that ETH supply would decline rapidly after the merger was activated.
Burn rate drops after Dencun affair
The network’s inflationary turn in April notably came just weeks after Ethereum went live Dencun Upgrade March 13th.
Dencun has significantly reduced the costs associated with Layer 2 transactions by replacing gas-intensive call data with binary large objects (blobs), leading to fee reductions of over 90% across most major L2 networks, according to GrowThePie.
Arbitrum, OP Mainnet, and Base each paid between $421,000 and $1 million in daily fees to validate transactions on the Ethereum mainnet, amid a local spike on March 5. However, Arbitrum’s layer 1 costs have since slipped to between $1,000 and $10,000 per day in July, while Base and OP Mainnet are paying just a few hundred dollars each.
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