Ethereum (ETH) goes back to deflation thanks to vibrant network activity again

After nearly 2 months of being in an inflationary state, the amount of ETH burned from transaction fees has again surpassed the supply from staking.

ETH supply growth since The Merge. Ultrasound.money screenshot at 10:55 AM on 24/01/2023

According to data from Ultrasound.money, the Ethereum (ETH) network has returned to deflation for the first time since early December 2022.

Specifically, as of 07:00 AM on January 24, 2023, Ethereum is experiencing an annual deflation rate of 0.002%, with the supply of ETH reduced to more than 2,800 VND compared to the time when The Merge upgrade was performed in the middle. September 2022. Even so, this deflation is still lower than the 0.0051% mark of the mid-November period, when the cryptocurrency market experienced intense volatility after the collapse of the FTX exchange.

As explained by Kyptos, Ethereum after The Merge has switched to using the Proof-of-Stake and staking consensus mechanism, cutting up to 90% of new coins generated compared to the old Proof-of-Work mechanism. coin mining activities. When combined with the EIP-1559 upgrade to burn some of the ETH transaction fees, this could create deflationary pressure on the world’s second largest cryptocurrency.

In the last 30 days, the amount of ETH burned reached more than 59,000 coins, most of which came from NFT protocols such as OpenSea and Blur. This is a difference from the early December period when the solutions to burn the most coins were DEX exchanges and on-chain ETH circulation when trading demand was at a high level. At the moment, it can be seen that the new demand to buy and sell NFTs is the main reason pushing the level of ETH being burned again and creating a relief effect for the Ethereum network.

The most ETH burned and Ethereum applications burned the most fees in the last 30 days.. Screenshot Ultrasound.money at 10:55 AM on 24/01/2023

The graph of the daily amount of ETH burned has also witnessed a slight recovery in the past 1 month, with an average of about 1,900 – 2,000 ETH per day.

The amount of ETH burned daily thanks to EIP-1559 since the end of December 2022. Source: Etherscan

ETH price since the start of the New Year 2023 has clearly recovered in the bullish direction of Bitcoin (BTC). Compared to the $1,196 mark of January 1, ETH jumped to $1,679 at one point, up 40%. However, unlike BTC, Ethereum has not yet been able to break through the price level before the FTX crash in early November.

1D graph of ETH/USDT pair on Binance at 10:55 AM on 24/01/2023

Looking back at historical data, January and February are usually good times for ETH with many months of strong gains.

ETH price movement by month from 2015 to present. Source: Coinglass

In the first quarter of 2023, Ethereum will likely conduct a Shanghai upgrade to unlock $25 billion in ETH being used for staking. Shanghai last night had a test hard fork on the testnet and if there are no unexpected problems, it will be conducted in March.

The fact that a large amount of ETH is about to be unlocked is forming a trend to invest in Liquid Staking projects with the expectation that when investors receive ETH back, they will put money into flexible staking solutions like Lido or Rocket Pool. instead of being sold on the market.

Synthetic Kyptos

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