Arguably, the biggest news in a jam-packed month for Ethereum was the successful implementation of EIP-1559. For a more in-depth review of all things EIP-1559, see our Ethereum CORE report, but the headline feature has been the burning mechanism. Post-EIP-1559, every Ethereum transaction now burns (removes from circulation) a portion of ETH, creating deflationary pressure.
Source: Dune Analytics
In the ~30 days since going live, approximately ~190,000 ETH (~0.15% of supply) or $590M has been burned. This is an astounding amount, especially considering that only ~50% of all transactions on the network are using EIP-1559 style transactions, while the other ~50% still use the “legacy” transaction type. Over time, adoption of EIP-1559 should increase closer to 90-100% as more wallet and service providers make the switch.
Source: Delphi Digital
Prior to EIP-1559, Ethereum’s inflation rate was ~4% but due to high network traffic and therefore more ETH being burned, the current inflation rate is < 1%. Thanks to the burn feature, ETH’s supply has now undergone a Bitcoin halving-esque supply reduction. ETH inflation now sits below Bitcoin’s (~2.8%), giving ETH more appeal as a Store of Value (SoV) asset.
Source: CoinMetrics
Fees
One common misconception with EIP-1559 is that it would help reduce Ethereum gas fees. While it should help reduce fee volatility, it actually doesn’t help reduce fees when the chain is experiencing heavy usage. And experiencing heavy usage, it is!
Despite ETH transaction fees spiking to their highest levels in 3 months, averaging > $40, usage metrics continue to rise.
Source: CoinMetrics
In August, Ethereum surpassed Bitcoin in total value transferred on-chain according to Coin Metrics’ adjusted transaction volume estimates. Total ETH fees paid have remained higher than on Bitcoin since mid-2020. In 2021, total fees on Ethereum (USD) were 4x Bitcoin, suggesting that the demand for block space on Ethereum is outpacing Bitcoin despite the astronomical fees.
