The Ethereum network is currently experiencing some of its lowest activity levels in recent years, with daily ETH burn figures dropping to a yearly minimum. Base transaction fees have consistently ranged between 1 to 2 gwei, significantly reducing the rate of ETH being permanently removed from circulation.
This sustained period of low gas fees has directly influenced Ethereum’s issuance rate, leading to a noticeable increase in net inflation. On Saturday, only 210 ETH were burned — the smallest amount recorded this year. This stands in stark contrast to earlier periods of high demand, such as on August 5, when gas fees spiked to around 100 gwei and daily burn volumes surged to 5,000 ETH.
According to data analytics sources, while 210 ETH were burned that day, the net ETH issuance exceeded 2,000 ETH, highlighting the inflationary impact of reduced network activity.
Understanding the Decline in ETH Burning
The drop in gas consumption stems from two major shifts within the Ethereum ecosystem: the growing user migration to Layer 2 scaling solutions and the implementation of blob transactions introduced by the Dencun upgrade in March. These blobs have significantly reduced transaction costs on Layer 2 networks, diverting activity away from the more expensive mainnet.
The London hard fork, also known as EIP-1559, was implemented in August 2021. It introduced a base fee mechanism that burns a portion of each transaction fee, while a priority fee goes to validators as a tip. This base fee fluctuates with network demand — higher activity leads to more ETH burned, thereby reducing overall supply.
The Inflationary Effect of Low Fees
With base fees consistently at multi-year lows, the network’s tokenomics have shifted temporarily toward inflation. Martin Köppelmann, founder of Gnosis, commented on this trend, noting:
“The base fee is currently at a multi-year low of around 0.8 GWEI. To offset staking rewards, 23.9 is needed. In my opinion, Ethereum needs to increase L1 activity again — even at these low rates, increasing the gas limit could be part of the strategy.”
His suggestion to temporarily raise the gas limit aims to encourage more mainnet usage and help balance issuance with burn activity.
Market Response and ETH Valuation
Despite the internal network dynamics, ETH’s market performance has remained relatively stable. At the time of reporting, ETH was trading around $2,540, with a year-to-date increase of nearly 10% and a market capitalization of approximately $305 billion. This suggests that while on-chain activity is down, investor confidence remains steady.
For those interested in tracking real-time gas prices and network statistics, you can monitor live Ethereum metrics here.
Frequently Asked Questions
Why has the ETH burn rate decreased so significantly?
The primary reason is reduced demand for block space on the Ethereum mainnet, driven by widespread adoption of Layer 2 networks and reduced transaction costs thanks to the Dencun upgrade.
What is EIP-1559 and how does it relate to ETH burning?
EIP-1559 introduced a fee-burning mechanism that destroys a base fee from each transaction. The amount burned depends on network congestion—higher activity results in more ETH being permanently removed from supply.
How do low gas fees affect Ethereum’s inflation rate?
When fewer ETH are burned, the net issuance of new ETH from staking rewards exceeds the burn rate, leading to a temporary inflationary phase.
Could increasing the gas limit help reduce inflation?
Yes, a higher gas limit would allow more transactions per block, potentially increasing burn activity and helping offset ETH issuance from staking.
What are blob transactions and how do they reduce fees?
Blob transactions, introduced with the Dencun upgrade, allow Layer 2 networks to post data more cheaply to the mainnet, reducing costs and congestion.
Is the current low activity a concern for Ethereum’s long-term health?
Not necessarily. It reflects successful scaling through Layer 2s, which now handle more activity while maintaining the security and decentralization of the mainnet.
Conclusion
Ethereum is in a transitional phase where low mainnet activity has led to reduced ETH burning and temporary inflation. However, this also signals the success of its scaling roadmap, with Layer 2 solutions effectively handling user demand. As the network continues to evolve, factors like gas limit adjustments and broader adoption trends will play crucial roles in balancing supply dynamics.