ETH DEFLATION HAS ALREADY BEGUN
Ethereum is a technology that’s home to digital money, global payments, and applications. The community has built a booming digital economy, bold new ways for creators to earn online, and so much more. It’s open to everyone, wherever you are in the world — all you need is the internet.
Despite increased network activity, Ethereum has experienced its first week of deflationary issuance, meaning that more ETH has been destroyed than created in the last seven days.
Since EIP-1559 introduced Ethereum’s burn mechanism in early August, more than 1.5 million Ether has been burned. In less than six months, nearly $5 billion worth of ETH has been destroyed. For the first time, Ethereum’s issuance rate has fallen below that of Bitcoin.
The achievement is encouraging for Ethereum’s 2.0 roadmap. With the introduction of Proof-of-Stake consensus, the Merge is expected to reduce ETH issuance by another 90%, putting an end to block rewards for Proof-of-Work miners.
Between January 11 and January 18, according to Ethereum data aggregator “Watch The Burn”, 5,910 more ETH had been destroyed than created, resulting in a net weekly issuance offset of $18.8 million. As of Jan. 17, the weekly issuance offset was around 15,500 ETH, or $51.M.
Ultrasound Money, a data provider, estimates that over 100,300 ETH were destroyed in the last week at a rate of 10 ETH per minute. The most ETH was burned by OpenSea (17,625 ETH), followed by ETH transfers (9,599 ETH), and Uniswap v3 (6,249 ETH).
Since EIP-1559 went live, an average of 6.47 ETH has been burned every minute.
Network Participants
“CryptoGucci” on Twitter commented on the significant decrease in ETH issuance, estimating that Ethereum’s inflation has decreased by nearly 70% since 1559 went live. “ETH Issuance will drop 90% and turn fully deflationary once The Merge arrives in July,” they added.
Although not everyone believes that deflationary issuance will benefit the entire Ethereum network.
“Am I the only one worried about Ethereum’s deflationary potential?”
Brian Sgeth stated. “If you’re an investor, this appears to be a good deal, but if you’re a user, this doesn’t appear to be the best deal.”
Base Fee
Polygon forked to introduce EIP-1559 on Jan. 18, following Ethereum’s lead. This means that a base fee denominated in its native MATIC token will now be burned with every transaction executed by the network.
Because MATIC has a fixed supply, the newly launched burn mechanism will result in deflationary issuance. Based on current network activity, the Polygon team estimates that 0.27 percent of the MATIC supply will be destroyed in the next 12 months.
Last month, Binance introduced an automated protocol to manage its quarterly BNB burns, replacing its previous revenue-based burn system. In BNB’s 18th burn event, the protocol was used for the first time on Jan. 17, destroying more than 1.68 million BNB (worth nearly $780 million at current prices).
