Featuring Ethereum Improvement Proposal (EIP) 1559, the London hard fork introduced significant changes to Ethereum’s transaction fee mechanism. Users now pay a base fee that is subsequently burned, effectively removing ether from circulation forever.
This approach significantly impacted the token’s supply, resulting in a monthly burn rate of approximately 146,000 ETH.
The London Hard Fork And Its Deflationary Impact
Integrated into the Ethereum network on August 5, 2021, the London hard fork brought a paradigm shift in the cryptocurrency’s transaction fee structure.
Through the EIP-1559, the network introduced a unique mechanism that involved the burning of a significant portion of transaction fees, known as the “base fee.” This innovative approach aimed to counterbalance Ethereum’s inflation while providing block rewards and priority fees to miners.
As a result, the base fee is permanently removed from circulation, leading to a deflationary effect on the token’s supply.
The scale of the burn has been enormous, with over 3.46 million ETH, worth $6.68 billion, annihilated since the London hard fork’s enforcement. This translates to an average monthly burn rate of more than 146,000 ETH over the 710-day period that followed the upgrade.
146,000 ETH burned per month | Source: Beaconcha.in
Ethereum’s deflationary path effectively offset the issuance of new tokens, curbing its supply growth by approximately 0.1% annually.
Leading Contributors To The Ethereum Burn
The principal factors driving Ethereum’s burn phenomenon include regular ETH transfers, non-fungible token (NFT) transactions on Opensea, and activities on the decentralized exchange Uniswap.
Regular ETH transfers accounted for the most substantial reduction in supply, leading to the incineration of nearly 300,000 ETH.
Uniswap v2 follows closely, with $56.5 million worth of ETH burned since the hard fork, while transfers of Tether stablecoins contributed to the destruction of $50.5 million worth of ETH.
ETH price struggles to hold $1,900 support | Source: ETHUSD on TradingView.com
Blockchain gaming platform Axie Infinity and Uniswap v3 each burned $32 million and $30 million worth of ETH, respectively.
At the same time, the number of ETH staked in the Ethereum Beacon contract has also been on the rise. It is now sitting at over 26.87 million ETH, translating to a dollar value of $51.35 billion.
With the Ethereum supply sitting at 120.2 million, it means that over 11% of its supply is currently locked up while the burn continues to take coins out of circulation.
Both of these developments combined could see the circulating supply of the digital asset reduce drastically, leading to a rise in the price of ETH as time goes on.
ETH is currently trading at a price of $1,903 at the time of this writing, representing a 0.72% increase in the last day.
Featured image from iStock, chart from TradingView.com