Ethereum already burned more than 8 Billion USD since EIP-1559

In August 2021, Ethereum underwent the London hard fork. This hard fork brought a set of five Ethereum Improvement Proposals (EIPs) into the platform.

The Ethereum community was particularly excited about EIP-1559, which burns a significant portion of each transaction. In total, more than 8 billion euros of Ethereum have already been burned since the launch of EIP-1559.

Less and less ether in the furnace

At the time of writing, however, we are in the midst of the fiercest bear market in the history of the industry. Activity in the NFT market is in a huge slump and the DeFi world has also seen its best days. With the disappearance of the hype surrounding these two promising developments, activity on Ethereum has also declined significantly.

So much so that the 7-day average of the daily number of transactions on Ethereum has fallen below a million for the first time since 2020.

Burning ether through EIP-1559 depends on the daily number of transactions and as a result, the digital incinerators are currently relatively empty.

The lower the number of transactions, the more space there is in the blocks and that reduces transaction costs. We can therefore clearly see the drop in activity in the Ethereum network in the statistics of EIP-1559.

At the time of writing, just over 1,000 ethers are still going into the ”oven” on a daily basis. This currently scores it the lowest numbers since the introduction of EIP-1559.

As you can see, Ethereum has had periods where more than 10,000 ethers disappeared from circulation on average daily. The huge spike in early May marks the sale of digital land in Yuga Labs’ Otherside metaverse.

EIP-1559 and deflation

Leading up to EIP-1559, the Ethereum community speculated about the update’s potential impact on the protocol’s monetary policy. After all, EIP-1559’s combustion mechanism means that Ethereum could become deflationary at times.

If activity on the network explodes and transaction costs increase, it is possible that the burn could exceed the block grant to miners.

At the moment, there is no question of this happening. Net issuance of ether now averages above 10,000 ether per day. At current exchange rates, that represents a value of about 10 million euros per day. However, there have been times when Ethereum was indeed deflationary thanks to EIP-1559.

For example, in November 2021 during the peak of the previous bull market, Ethereum’s net issuance was negative for a few days. We saw the same thing in January of this year and of course during the selling round of Yuga Labs’ Otherside metaverse.

For ether to become a deflationary asset, the protocol simply needs more activity. There is logically none in this market. But looking at the big picture, the damage in this area is not too bad for Ethereum.

Although in the monthly chart the number of transactions per month is also in a downward trend, we are still well above the averages of the bull run of 2017 on 2018.

In this regard, the next few months are going to be important for Ethereum. First of all, because of the long-awaited transition to Proof-of-Stake. In addition, it is important for the ecosystem that usage rates do not fall too far.