Ethereum Gas Fees Hit Lowest Level in Two Years, Casting Doubt on Summer Rally
Ycharts data shows that Ethereum's transaction fees are at their lowest level since mid-2020's 'DeFi Summer'
Ethereum transaction fees are below 13 gwei, the lowest in two years.
Campout
The dramatic fall in on-chain activity may also cast doubt on The Merge, a bullish indication propelling Ethereum's summer rise.
After September's Proof-of-Stake network switch, investors may not destroy more Ether than they issue.
Ethereum's EIP-1559 upgrade burned base transaction fees in August 2021. A percentage of each Ethereum transaction cost gets destroyed thereafter.
Combining
Coupled with the approaching Eth2 Proof of Stake chain-merge, many observers expect the network to turn deflationary following The Merge next month.
Ethereum's deflationary story is dubious as network activity plummets under the market trend. Burn rate must increase by one-third to keep up with post-merge Ether issuance.
Ethereum's transaction costs are at their lowest level since the 'DeFi Summer' of mid-2020. Average daily transaction fees are 12.5 gwei, the lowest since April 2020, according to Ycharts.
Average Ethereum fees. Ycharts.com
Off-peak gas fees are as low as 4 gwei.
Recent on-chain activity drops have lowered Ethereum's burn rate. Ultra Sound Money, a website measuring Ethereum's burn rate, says 7,440 ETH was burned in the past week, the lowest number since EIP-1559 launched last year.
In January, during the NFT bubble, more over 12 ETH was burned every minute, or 121,000 each week.
Weekly Ethereum burn. Ultrasoundmoney.com
The Merge will merge Eth2 Proof of Stake Beacon Chain with Ethereum mainnet next month. The upgrade should enhance the network's energy efficiency by 99% and reduce Ether issuance by 90%.
The current decline in network activity challenges the premise that Ethereum will become deflationary after the upgrade.
Flux
According to Ethereum Foundation researcher Justin Drake, the present burn-rate would offset two-thirds of Ether issuance following The Merge. Drake projected that once Ethereum transitions to Proof of Stake, 1,600 ETH will be issued everyday, or 11,200 Ether per week.
Ethereum's burn rate will increase as more people stake ETH to maintain a node and validate transactions.
Vitalik Buterin, Ethereum's co-founder and chief scientist, stated new Ether will be distributed annually at 166 times the square root of staked ETH.
If 1M ETH is staked, 166,000 new Ether will be issued per year, however 100M ETH will only issue 1.66M Ether.
According to Staking Rewards, almost 13.15M ETH or 10.8% of circulating Ether is locked up for staking. Under Proof of Stake, 1,649 additional ETH would be released everyday, or 11,543 Ether weekly.
Ethereum has produced 26 days of deflationary issuance since transaction fee burning began, before The Merge.
NFT
Watch The Burn data shows two weeks of deflationary Ethereum issuance. The first week of negative issuance happened at the end of October, during the height of the digital asset markets. In January, growing NFT activity drove the second week.
On May 1, costs surged amid the heated gas warfare surrounding Yuga Labs' Otherdeeds NFT property auction. 58,000 Ether worth $160M were destroyed in one day.