Since the August 2021 London upgrade, Ethereum has lost a sizable portion of its supply. Since the implementation of EIP-1559, which altered the way fees are determined, more over 4 million ether (3.2%) have been withdrawn off the network, according to ultrasound.money, a portal that keeps track of various information related to the ETH burn.
More Than 3% of EIP-1559’s Ether Supply Is Burned
Since the August 2021 London update was implemented on the network, Ethereum has drastically decreased its supply. There has been a noticeable drop in the issuance of Ether with the deployment of Ethereum Improvement Proposal 1559 (EIP-1559), a proposal that altered the way fees are determined and included a burn rate based on network activity.
As per ultra.money, this decline has surpassed 3% of the existing ether supply throughout the entire market. Due to this design, which includes transferring some ETH to a null address, thereby burning it from the entire supply, over 4 million ETH had been destroyed. The main goals of the implementation were to balance out costs and make it more predictable.
Based on the theory that Ethereum might become deflationary during periods of significant network usage—that is, its issuance being less than its burning—the EIP-1559 proposal and its aftermath gave rise to the extreme money meme. This hasn’t been the case, though, since approximately 7 million more ether has been created than burned since the London hard fork.
The transfer of Ethereum’s activities from L1 to L2 platforms—like rollups, which have emerged as the main scaling option for the chain—is probably connected to this. The upcoming Dencun upgrade, which contains EIP-4844 (sometimes called Proto-Danksharding), which aims to create a substitute market for “blobs” in order to mitigate the rollups’ already low fees, may make this worse.
It is important to remember that EIP-1559 is still relevant for the network because it has helped to keep the rate of ether supply inflation at or near 1% annually.
Regarding EIP-1559 and its impact on the supply of ether, what are your thoughts? Tell us in this section of the comments below.
Seeing EIP-1559 and other updates come to life on Ethereum has been a real game-changer, hasn’t it? At Pinax, we’re all about embracing these kinds of shifts, especially how they tweak the economics of Ethereum. How have these changes sat with you, especially in terms of Ethereum’s market and how it feels to use the network now? We’re super keen to chat more about this and see where the conversation takes us. Really loved reading your take on it! – The Pinax Team