Ethereum Burn Rate Hits Yearly Low: What This Means For ETH’s Future

Samuel Edyme

1 year ago

2 mins read

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In recent weeks, Ethereum has displayed subtle signs of recovery amidst a generally bearish crypto market, with the altcoin mimicking Bitcoin’s modest uptrend.

Despite Ethereum’s price increasing slightly by 0.2% over the last 24 hours, a parallel trend that might significantly affect Ethereum’s economic model has been unfolding beneath the surface.

Decline In Network Activity Reduces ETH Burn

April witnessed Ethereum’s ETH burn rate hitting an annual low, primarily due to a significant decrease in network transaction fees.

These fees have typically fluctuated just below 10 gwei this year, but recent weeks have seen them dip to some of the lowest levels, directly influencing the rate at which ETH is burned.

Ethereum Average Gas Fee. | Source: YCharts

This reduced burn rate is evidenced by the stark drop in daily burned ETH, which reached a low of 671 ETH in the past day a notable decrease from the daily figures of 2,500–3,000 ETH seen earlier in the year.

Ethereum Burn Rate in the past day. | Source: Ultrasoundmoney

Such a decline in burn rate is not merely a statistical anomaly but a reflection of broader shifts within the Ethereum network.

A significant factor contributing to the lowered gas fees is the increased migration of network activities to Layer 2 solutions, which enhance transaction speeds while lowering costs.

Moreover, innovations like blob transactions, introduced in Ethereum’s recent Dencun upgrade, have further optimized costs on these secondary layers.

Notably, Blobs are a feature introduced to enhance Ethereum’s compatibility with Layer 2 solutions like zkSync, Optimism, and Arbitrum by efficiently managing data storage needs. This functionality is part of the Dencun upgrade, which integrates proto-danksharding via EIP-4844.

While beneficial in reducing transaction fees, these technological strides pose challenges to Ethereum’s deflationary mechanisms.

This upgrade introduced a new fee structure in which a part of every transaction fee, the base fee, is burned, potentially reducing the overall ETH supply. However, with decreased transaction fees, the anticipated deflationary pressure via burning has softened, signaling a shift to a more inflationary trend in the short term.

According to Ultrasoundmoney, Ethereum’s supply dynamics have swung to a mildly inflationary mode with a growth rate of 0.498%. This shift could realign if network activity intensifies, leading to increased transaction fees and, consequently, higher burn rates.

Ethereum supply growth rate. | Source: Ultrasoundmoney

Ethereum Market Response

Despite these underlying network dynamics, Ethereum’s market price has struggled to regain its former highs above $3,500. The asset trades around $3,085, reflecting a slight downturn over recent weeks.

Ethereum (ETH) price chart on TradingView — ETH price is moving sideways on the 4-hour chart. Source: ETH/USDT on TradingView.com

This price behavior underscores the broader market’s reaction to internal network changes and external economic factors, such as regulatory struggles from the US Securities and Exchange Commission (SEC) and macroeconomic uncertainties.

Looking ahead, the trajectory of Ethereum’s gas fees and subsequent ETH burn rate will be crucial in determining the sustainability of its economic model.

Featured image from Unsplash, Chart from TradingView

Samuel Edyme

Meet Samuel Edyme, Nickname - HIM-buktu. A web3 content writer, journalist, and aspiring trader, Edyme is as versatile as they come. With a knack for words and a nose for trends, he has penned pieces for numerous industry player, including AMBCrypto, Blockchain.News, and Blockchain Reporter, among others.

Edyme’s foray into the crypto universe is nothing short of cinematic. His journey began not with a triumphant investment, but with a scam. Yes, a Ponzi scheme that used crypto as payment roped him in. Rather than retreating, he emerged wiser and more determined, channeling his experience into over three years of insightful market analysis.

Before becoming the voice of reason in the crypto space, Edyme was the quintessential crypto degen. He aped into anything that promised a quick buck, anything ape-able, learning the ropes the hard way. These hands-on experience through major market events—like the Terra Luna crash, the wave of bankruptcies in crypto firms, the notorious FTX collapse, and even CZ’s arrest—has honed his keen sense of market dynamics.

When he isn’t crafting engaging crypto content, you’ll find Edyme backtesting charts, studying both forex and synthetic indices. His dedication to mastering the art of trading is as relentless as his pursuit of the next big story. Away from his screens, he can be found in the gym, airpods in, working out and listening to his favorite artist, NF. Or maybe he’s catching some Z’s or scrolling through Elon Musk’s very own X platform—(oops, another screen activity, my bad…)

Well, being an introvert, Edyme thrives in the digital realm, preferring online interaction over offline encounters—(don’t judge, that’s just how he is built). His determination is quite unwavering to be honest, and he embodies the philosophy of continuous improvement, or “kaizen,” striving to be 1% better every day. His mantras, “God knows best” and “Everything is still on track,” reflect his resilient outlook and how he lives his life.

In a nutshell, Samuel Edyme was born efficient, driven by ambition, and perhaps a touch fierce. He’s neither artistic nor unrealistic, and certainly not chauvinistic. Think of him as Bruce Willis in a train wreck—unflappable. Edyme is like trading in your car for a jet—bold. He’s the guy who’d ask his boss for a pay cut just to prove a point—(uhhh…). He is like watching your kid take his first steps. Imagine Bill Gates struggling with rent—okay, maybe that’s a stretch, but you get the idea, yeah. Unbelievable? Yes. Inconceivable? Perhaps.

Edyme sees himself as a fairly reasonable guy, albeit a bit stubborn. Normal to you is not to him. He is not the one to take the easy road, and why would he? That’s just not the way he roll. He has these favorite lyrics from NF’s “Clouds” that resonate deeply with him: “What you think's probably unfeasible, I've done already a hundredfold.”

PS—Edyme is HIM. HIM-buktu. Him-mulation. Him-Kardashian. Himon and Pumba. He even had his DNA tested, and guess what? He’s 100% Him-alayan. Screw it, he ate the opp.

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