Good day everyone,
I hope you are all having a good day, welcome to CryptoGod-1's blog on all things crypto. In this post I will be looking at the recent decline in demand for the Ethereum Network as the Burn rate has fallen.
Ethereum Network Demand Drops
The Ethereum Network has seen a sharp decline in demand as it hit a new low of 53.07 ETH (worth approximately $106,000) burned last Saturday. This marked the lowest daily burn since the fee-burning mechanism was introduced in 2021 under EIP-1559. It notes a sharp reduction in demand for the Ethereum blockchain even though EIP-1559 was intended to simplify transaction fees and reduce ETH supply by burning the base fee in each transaction.
At periods of the highest usage following EIP-1559 the mechanism can make Ethereum deflationary. Recent data from Ultrasound.money has shown that Ethereum’s supply is now expected to grow by 0.76% annually, making it inflationary. The low burn rate is attributed with a dop in on-chain activity. Metrics such as active addresses, new address creation, transaction count, and daily trading volume all suggest that there has been a significant drop in recent weeks, A seven-day moving average of active addresses recently dipped to its lowest level since October 2024.
While the demand for the blockchain has fallen, the exchange supply of Ethereum has also reached a critically low level of 8.97 million ETH. This marks its lowest amount since November 2015, almost a decade ago. The decline coincides with the decline in on-chain activity and has sparked concerns over liquidity and market sentiment. A reduction in supply on exchanges would indicate that investors are moving their holdings into cold storage wallets. This is considered a more long term solution and could also indicate investor confidence in Ethereum, as moving assets to cold storage is typically a strategy for long-term holding rather than short-term trading.
The decrease in exchange supply also raises issues regarding liquidity, as fewer available tokens for trading means the market could become more volatile. A large buy or sell order could cause turmoil, and the volatility could be exacerbated by the current bear market conditions.
The transaction fees for Ethereum have also fallen to their lowest level since late August, averaging just $0.41 per transfer. This is a major fall from the highs of $15.21 seen in the previous two years. The reduction in user engagement on Ethereum comes as the competitions from Layer 2 networks intensifies. These alternative blockchains offer lower fees and faster transactions. This raises long-term questions for Ethereum, as a reduction in activity could lead to diminished incentive for miners to secure the network and potentially impact the stability and security of the blockchain.
Standard Chartered have also revised their prediction price for Ethereum in 2025, changing from $10,000 to $4,000 amid the rapid expansion of Layer 2 networks. Geoffrey Kendrick, the bank’s global head of digital assets research, noted that platforms such as Base are generating substantial profits from within the Ethereum ecosystem. This has led to the change in price forecast, as the Layer 2 networks are impacting Ethereum instead of supporting its price. Standard Chartered expects this trend to continue, further diminishing Ethereum’s influence.
As the price of Ethereum struggles below $2,200, the mounting challenges also come in the decentralised exchange (DEX) space. Ethereum based De-Fi is weakening as rivals such as Solana (SOL), Tron (TRX), and BNB Chain (BNB) have all made gains. Ethereum saw De-Fi trading fall by 34% in a week while the likes of BNB saw an increase of 27%. It was also interesting to note that PancakeSwap (BNB Chain) overtook Uniswap (Ethereum) in total fees. The leading protocols on Ethereum, Maverick Protocol and DODO, saw 85% and 46% in volume declines respectively.
The Ethereum blockchain remains the top blockchain in total value locked (TVL) at $47.2 billion, although its 9% weekly decline has narrowed the gap. BNB Chain saw an increase in 6% in the last week. Ethereum remains the top choice for asset tokenisation as over $3.3 billion remains in tokenised assets.
Have a great day.
Peace. CryptoGod-1.
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