Ethereum’s Burn Rate Slumped 67% In Q2

Ethereum’s deflationary narrative appears to be in peril.

Q2 2024 hosted Ethereum’s highest quarterly inflation rate since the networks transitioned to Proof of Stake consensus through The Merge in September 2022, according to a new quarterly web3 report from CoinGecko.

The report notes that 120,800 ETH were added to Ethereum’s supply ($421.3 million) after only 107,725 of the 228,500 newly issued coins were removed by Ethereum’s base transaction burning mechanism in the second quarter.

The trend resulted in Ethereum’s quarterly burn rate dropping by 66.7%, with the network trending deflationary for only seven days in Q2 — down from 66 days in Q1.

Low gas fees

Ethereum’s plummeting burn rate was driven by a spate of very low gas prices, with the network currently charging just 3 gwei for a typical transaction, according to Ultra Sound Money. Last month, fees dropped to their lowest level since 2020 by briefly tagging 1.9 gwei.

Ethereum’s supply is now more than 120.2 million for the first time since early December, after flipping inflationary in early April. ETH’s supply is now inflating by between 50,000 ETH and 60,000 each week. The supply of ETH remains down by nearly 293,000 since TheMerge.

The trend poses a double-edged sword to Ethereum, with low transaction fees both paving the way for greater network adoption and answering one of the main criticisms levied against the network since on-chain activity took off with the emergence of DeFi Summer in 2020.

However, many investors were attracted to Ethereum by its post-merge deflationary promise, with fee and transaction data from 2022 suggesting that ETH’s supply would quickly shrink after The Merge’s activation.

Burn rate slumps post-Dencun

The network’s inflationary turn in April notably came just a few weeks after the activation of Ethereum’s Dencun upgrade on March 13.

Dencun significantly reduced the costs associated with Layer 2 transactions by replacing gas-intensive calldata with binary large objects (blobs), leading to fee sayings of more than 90% on most of the top L2 networks, according to GrowThePie.

Arbitrum, OP Mainnet, and Base each paid between $421,000 and $1 million in daily fees to validate transactions on the Ethereum mainnet amid a local high on March 5. However, Arbitrum’s Layer 1 costs have since slipped to between $1,000 and $10,000 daily during July, while Base and OP Mainnet are paying just a few hundred dollars each.