Quick Take:

• Ethereum witnesses a significant decline in daily ETH burned, hitting a yearly low due to decreased gas fees.
• Gas fees currently range between 5 and 10 gwei, marking one of the lowest levels this year.
• The drop in network fees leads to a decrease in ETH burned, with Sunday’s tally hitting a record low of 610 ETH.
• Factors contributing to lower gas fees include the adoption of Layer 2 scaling solutions and blob transactions introduced with the Dencun upgrade.
• While beneficial for users, reduced ETH burn impacts Ethereum’s deflationary nature, particularly after the EIP-1559 upgrade.

Ethereum’s blockchain is experiencing a notable downturn in the daily amount of Ether (ETH) burned, hitting its lowest level this year, primarily attributed to a recent dip in average gas fees.

Presently, gas fees are oscillating between 5 and 10 gwei, marking one of the lowest thresholds witnessed in 2024. This decline in network fees translates into fewer ETH being consumed. On a recent Sunday, only 610 ETH were burned, setting a record low for the year, as Ethereum’s gas fees remained subdued.

In contrast, during the initial four months of the year, the daily ETH burn rate remained notably higher, ranging between 2,500 to 3,000 ETH.

Several factors contribute to the ongoing reduction in gas fees. One significant factor is the migration of activity to Layer 2 scaling solutions, alongside the adoption of blob transactions facilitated by the Dencun upgrade in March. These developments aim to alleviate transaction costs on Layer 2s, thereby reducing reliance on the Ethereum mainnet for certain transactions.

The interplay between gas fees and ETH burning holds significant importance within Ethereum’s economic framework. While lower fees are advantageous for network users, the decrease in ETH burn has implications for Ethereum’s deflationary nature.

The implementation of the London hard fork, particularly the EIP-1559 upgrade in August 2021, fundamentally altered Ethereum’s fee structure. This upgrade introduced a base fee that is burned and a priority fee that serves as a tip to validators. Consequently, higher fees lead to a greater amount of ETH being removed from circulation through burning.

Recent data indicates a shift in Ethereum’s supply dynamics, turning it inflationary over the past week, with a supply growth rate of 0.49%, as reported by ultrasound.money. However, should activity escalate and ETH burn outpace issuance, Ethereum’s economic model could revert to a deflationary state once again.