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NFTs and DeFi, especially via OpenSea and Uniswap, are currently heating the fire of the Ethereum network because: More and more Ethereum is being burned.
ETH Burns: Ethereum is getting rarer and rarer
Over the past week, Ethereum has been burning hotter than ever. As part of the EIP-1559 (Ethereum Improvement Proposal) launched back in August 2021, Ethereum has been burning ETH on a massive scale.
Under EIP-1559, a portion of all Ethereum transactions will be destroyed: a portion of every NFT trade, return strategy, and even simple token transfers. Everything is burnt.
A total of 2.8 million ETH have been withdrawn since the launch of EIP-1559. That equates to around $4.6 billion at today’s exchange rates.
In the last seven days alone, the Ethereum protocol has wiped out more than 16,364 ETH at an estimated rate of 1.62 ETH per minute, according to Ultrasound Money.
— ManeMcFly 🦇🔊 (@ManeMcFly) 19 January 2023
ETH – more deflationary than BTC
This burn mechanism also means that more ETH is destroyed than issued to miners. Supply growth has slowed to -1.06% pa since EIP 1559. This makes Ethereum more deflationary than Bitcoin.
The chart below shows how the network’s token pool has changed across different checkpoints and upgrades. The dotted part indicates that the deflationary trend is likely to continue over the next two years.
The only real reason why this forecast might not come true: if ETH adoption and usage falters. As a reminder, ETH is burned with every transaction on the network.
That way, we could use this burn rate as another way to measure network adoption.
So which usage categories (as defined by Ultrasound Money) are driving Ethereum adoption? For the past week, it has been NFT and DeFi activity that has kept Ethereum’s “flame” burning.
These two categories were responsible for wiping out nearly 8,000 ETH this week, with the leaders of each category – OpenSea (~1,298 ETH) and Uniswap V3 (~876 ETH) – being the main drivers behind this development.
This metric also gives us a little insight into the stablecoin battle between USDT and USDC. We all know USDT’s market cap is still miles ahead of USDC. But: The supply of Tether is also responsible for more than triple the amount of Ethereum that was burned.
USDT transfers burned around 705 ETH this week, while USDC transfers only burned 228 ETH. In other words, USDT continues to lead the way in the use of stablecoins on Ethereum.
As network activity continues, the Ethereum community will continue to see it burn.
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