Ethereum (ETH) has taken many strides towards becoming deflationary lately. The leading altcoin implemented a token burn mechanism on August 5, 2021 via the EIP-1559 upgrade. Currently, it has saved $9 billion in ETH in less than two years.
2.8 million ETH went out of circulation
The implementation of the token burning mechanism has resulted in Ethereum’s average gas fees falling. Prior to that, the team implemented a token burn mechanism on August 5, 2021. According to Glassnode data, around $9 billion worth of tokens have been burned cumulatively since then. According to data from ultrasound.money, the burning mechanism raised a total of about 2.8 million ETH tokens.
In Glassnode’s chart above, the blue reflects the daily supply of ETH burned at the spot price. Red represents the total value of ETH burned over time. During the bull in 2021, between $20 million and $75 million worth of ETH was burning every day. This amount dropped to only about $2-4 million worth of ETH each day in December 2022. According to Ultrason.money, 1,896.30 ETH, worth about $2.2 million, was burned in the past day.
It should be noted that the drop in Ethereum’s daily burn rate is a direct reflection of the drop in Ethereum activity amid the current bear market.
Why is it important to burn teTH?
Token burns refer to the sending of local tokens to an address where they become irrecoverable. This practice reduces the total supply. The burning mechanism was intended to regulate Ethereum’s gas fees. Prior to the burning mechanism, Ethereum users had to estimate their fees to the network. This has resulted in high volatility in gas fees, especially during times of high network congestion.
With millions of users complaining about high gas fees, the Ethereum network has included a token burning mechanism. Under the EIP 1559 upgrade, users are required to pay a base fee and a tip. This allows users to pay a base rate for delivery. It’s also the equivalent of paying a tip to delivery managers for delivery. While the network burns all the base fees, the type goes to the miners.
A deep look at the daily supply of ETH burned and gas fee data from Glassnode shows that the average gas fee has dropped significantly from about 100 Gwei before the implementation of EIP 1559 to about 15-20 Gwei. It increased from 100 to 200 Gwei between January and April 2021, while it rose to over 200 Gwei during network congestion. In other words, Ethereum’s average gas fees have decreased by around 80% since the implementation of the burn mechanism.
According to ultrasound.money estimates, around 1.9 million ETH is expected to be burned annually, while only 622,000 ETH is expected to be mined each year. Ethereum’s price is currently struggling in the middle of the crypto winter. It lost $2,000 support during the day. However, with the token burning mechanism, ETH is expected to become deflationary, leading to an increase in its value in the long run.
