Low Ethereum Gas Fees Inflate Supply By 50k ETH In One Month

A spate of unusually low Ethereum gas fees resulted in Ether’s supply growing by 50,550 coins over the past 30 days.

Data from Etherscan shows average gas prices dropping below $2 during four days this month to tag a low of $1.70 on May 18. The dip marked the lowest gas price recorded since October 2023.

According to Ultra Sound Money, Ethereum’s supply has grown by 62,646.61 ETH ($238 million) since Ether’s burn rate flipped inflationary on April 14, pushing the number of circulating coins up to its highest level since March 4.

Low gas prices threaten Ethereum deflation

Ethereum gas prices plummeted following the activation of Ethereum’s long-awaited Dencun upgrade on March 13.

Dencun introduced proto-danksharding, which drastically reduced the costs associated with Layer 2 transactions by replacing gas-intensive calldata with lightweight Binary Large Objects (blobs) via EIP-4844 — also known as proto-danksharding. Gas fees on top Layer 2 networks dropped by more than 90% following the upgrade, also reducing the burden placed on Ethereum’s mainnet by finalizing L2 transaction bundles.

But while the reduction in L2 transaction baggage precipitated Ethereum gas prices falling by up to an order of magnitude from $21.58 on March 13, Dencun also appears to have undermined Ethereum’s deflationary narrative.

Still, Ether’s supply has dropped by 394,678 ETH ($1.5 billion) since The Merge transitioned the network to Proof of Stake in September 2022. If the network maintained its former Proof of Work consensus and issuance model, 6.376 million coins worth $24.2 billion would have entered supply since September 2022.

Layer 2 throughput surges since February

Activity on Layer 2 networks recorded a sharp increase between February and April, nearly tripling to an all-time high of 158 transactions per second (TPS) on April 2 from an average of 54.6 TPS on Feb. 1, according to L2beat.

However, L2 throughput pulled back in April and dropped to a low of 88 TPS on May 11, but has since rebounded to 121.8 TPS.

The uptick was largely driven by Arbitrum, which processed 2.53 million transactions yesterday compared to 1.51 million on May 9, while Linea’s transaction count also jumped by roughly 100,100 to 472,800 over the same period, according to GrowThePie.

Arbitrum’s growth helped to offset a sharp drop in activity on Base as its memecoin trading frenzy cooled, with Base’s daily transaction count falling 37% to 1.91 million yesterday from more than 3 million in early April.