Ethereum’s burn rate has plummeted to its lowest level since EIP-1559 was introduced in August 2021.
EIP-1559, which is a major upgrade to the second most valuable blockchain network, introduced a base fee that is burned with every Ethereum transaction. That sets the stage for Ethereum to become deflationary — meaning that a greater sum of ETH will be burned than created.
That new phase will come after the Ethereum mainnet fuses with the Eth2 Beacon Chain and Ether issuance drops by 90%. Known as The Merge, this development is expected to occur in the third quarter.
Surging competition for block space amid the NFT bull market saw deflationary days posted in October, November, and again as NFTs peaked in January. But with the crypto markets selling off since January and the NFT market cooling, Ethereum’s fees and burn rate have slumped.
According to data from Watch The Burn, Ethereum’s daily burn rate tagged an all-time low of 2,086.6 ETH on March 12. The slump marks a more than 89% drop since a record 19,424.9 ETH were destroyed on January 10 — when 5,951.4 were destroyed than created in a single day.
Ultrasound Money estimates that just 2.5 ETH have been burned every minute this past week, down from a high of 12 ETH per minute in January.
A sharp drop in NFT activity appears to be the primary catalyst for the sharp dive in Ethereum fees. Leading NFT marketplace OpenSea has been the single-largest source of burnt Ether since launching. But its daily trade volume has ranged from $50M to $130M during March after tagging roughly $470M twice during January according to Token Terminal.
The introduction of the ERC-721A token standard in early January may have also contributed to the decline in NFT-related fees. Developed by “metaverse brand” Azuki, the new standard introduced three core gas optimizations compared to the popular ERC-721 standard resulting in the fees incurred by minting multiple NFTs to nearly “nearly the same gas as minting just one.”
The recent pull-back in the broader crypto markets also appears to have been a significant factor driving Ethereum’s falling fees.
Leading decentralized exchange Uniswap v3 consistently ranks among the network’s top few gas-guzzling protocols. Volume on v3 has trended between $1B and $2B during March, a significant compared to the $2B to $3B posted throughout the majority of November and December. Daily volume on the DEX peaked at $4.85B in early December and briefly rebounded to $4.5B in late January according to Nomics.
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