Ethereum, often dubbed “ultrasound money” due to its deflationary properties, faces a challenge as its supply grows with an annual inflation rate of 0.44%. This development comes on the heels of a notable decrease in Ethereum’s gas fees.
On October 8, the average Ethereum gas fee dropped to 8.8 Gwei, marking levels last witnessed on October 2, 2022, when the average gas fee on the network stood at 8.4 Gwei, according to data from Etherscan. Ethereum’s gas prices are typically measured in Gigawei (Gwei), which is equivalent to 10^9 Wei. Wei represents the smallest denomination of ETH, with 1 ETH equal to 10^18 Wei.
The decline in gas fees is likely attributable to reduced user activity in DeFi applications, NFTs, layer-2 networks, and various Telegram bots. Weekly NFT trading volumes hit two-year lows, signaling a sharp drop since the beginning of the year. Even Telegram trading bots, which gained traction in the second quarter of the year, have seen diminished activity in early October.
Notably, the gas consumption by Ethereum heavyweights like Uniswap, 1inch, and MetaMask has recorded double-digit drops in recent weeks. Additionally, data from Nansen 2.0 shows that leading gas spenders, including exchanges like Binance and Coinbase, as well as layer-2 networks such as Arbitrum, Optimism, and Base, have spent 30% less compared to the previous week. This marks the first decline in consumption on low-fee layer-2 networks since last year, according to data analyst Funnyking’s Dune dashboard.
Ethereum’s transition to an inflationary state in September 2023 coincided with a significant drop in gas fees. On Monday, Ethereum’s burn rate hit its lowest point for the year, with just 7,084 ETH burned. The last time Ethereum experienced such minimal burn levels was on September 19, shortly after the Ethereum Merge update introduced the burning mechanism.
At present, Ethereum’s supply is increasing at a daily rate of approximately 1,450 ETH, equivalent to $2.2 million worth of Ethereum, as reported by data aggregator Ultra Sound Money. This translates to an annual inflation rate of 0.44%. These developments raise questions about Ethereum’s deflationary narrative as it faces ongoing changes in supply dynamics.