Ethereum Inflation to Highest Levels Since EIP-1559 Implementation

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Ethereum’s net­work activ­i­ty has plunged con­sid­er­ably due to the mar­ket down­turn as the decen­tral­ized finance (DeFi) and NFT sec­tors took a hit.

Gas prices weren’t spared either. In fact, new data sug­gest­ed that these fig­ures have reached mul­ti-year lows and are now tread­ing near May 2020 levels.

  • With Ethereum fees drop­ping below $5 per trans­ac­tion, ETH burned by EIP-1559 has hit an all-time low. Fur­ther­more, only a mere 11% of mint­ed issuance has been burned from circulation.
  • This is the most infla­tion­ary ETH has been since EIP-1559 went live., as point­ed out by Glassnode’s lead researcher.
  • Ethereum adopt­ed burn mechan­ics as a means to help tran­si­tion users over to its new proof-of-stake (PoS) net­work from the cur­rent proof-of-work (PoW).
  • The EIP-1559 update was intro­duced last sum­mer, and it essen­tial­ly burns Ethereum gath­ered from fees asso­ci­at­ed with ver­i­fy­ing trans­ac­tions on the network.
  • The aim of the burn mech­a­nism was to make Ethereum defla­tion­ary. How­ev­er, the high issuance rate has prompt­ed the net­work to go in a dif­fer­ent direction.
  • The Ethereum’s long-await­ed “Merge” upgrade, on the oth­er hand, is expect­ed to deflate the sup­ply with the help of EIP-1559 by burn­ing ETH.
  • IntoThe­Block research direc­tor Lucas Out­u­muro believes that Ethereum’s net issuance will be con­fined with­in the 0.5% to 4.5% range based on net­work fees fol­low­ing the merge.
  • As per the exec’s find­ings based on his­tor­i­cal data, the net issuance of ETH will decline, prompt­ing a price ral­ly as its cir­cu­lat­ing sup­ply goes down. He added,

“ETH will become defla­tion­ary fol­low­ing the merge.”

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