Key Points
- The Ethereum network is experiencing its lowest daily ETH burn rate of the year.
- The reduced burn rate is linked to a decrease in average gas fees.
The daily burn rate of Ethereum (ETH) has significantly dropped, marking the lowest point this year.
On May 5, 2024, only 610 ETH was burned, a record low for the year. This drop is more significant when compared to the average daily burn rate of 2,500–3,000 ETH in the first four months of the year.
Decrease in Gas Fees and ETH Burn
The decline in the burn rate is attributed to a decrease in average gas fees, which currently range between 5 and 10 gwei, the smallest base unit of Ether. This is the lowest level seen this year, and it implies that lower network fees result in less ETH being burned, according to the Ethereum network’s economic model.
Several factors have contributed to the reduced gas fees. There has been a shift towards Layer 2 scaling solutions, and blob transactions, introduced in the March Dencun upgrade, are gaining acceptance. Both factors have significantly reduced transaction costs on the network.
However, the situation presents a double-edged sword. While users benefit from lower transaction costs, it has a negative impact on the network.
The decrease in ETH burn rate affects the Ethereum network’s deflationary nature. The London hard fork in August 2021 changed Ethereum’s fee structure, making higher fees result in more ETH being removed from the supply through burning and vice versa.
Due to recent events, Ethereum’s supply may have become inflationary, with a current supply growth rate of 0.49%, according to ultrasound.money. However, if more ETH is burned than issued, this could change.
