Ethereum (ETH) cannot be considered a deflationary cryptocurrency as its fees are too low to keep a sufficient burn rate. However, the “Ultra Sound Money” narrative vanishing is not a tragedy for the second cryptocurrency, a seasoned trader and analyst says.
Ethereum (ETH) fees lowest since August 2020, data says
August 2024 is the worst month for Ethereum (ETH) since the 2020 DeFi Summer in terms of network fees generated. This historical decline — an over 20x reduction since the peak — should be attributed to the migration of network activity to L2s and the introduction of blobs by ERC 4337 implementation, researcher Thor Hartvigsen shares in an X thread.
Is ETH no longer ultra sound money?🦇❌🔊
(5-min read)
August is on track to be the worst month in terms of fees generated on Ethereum mainnet since early 2020.
Since blobs went live in March, L2s no longer pay any meaningful fees to Ethereum and ETH holders.
Significant… pic.twitter.com/OuyrTvoOUr
— Thor Hartvigsen (@ThorHartvigsen) August 29, 2024
Hartvigsen analyzes the flow of ETH fees from various points of view (staker, non-staker and others) and notices that the exact fee flow to stakers is down by over 90% in 2024 only.
As a result, the inflation rate for ETH is now 0.7% per year. Combined with long-term stagnation of the Ethereum (ETH) price, this might look disturbing to the community and traders.
At the same time, these dramatic changes come with their own advantages, the analyst notices. To some extent, they were imminent for Ethereum’s L1:
The high $100 tx fees on mainnet were never sustainable and the network is now more usable (when perhaps disregarding the fragmentation of L2s)
Even these inflation rates are way better than those of competitors. For instance, as U.Today previously reported, the Cardano (ADA) community appreciates 2.5% inflation registered in August 2024.
Solana (SOL) and Avalanche (AVAX), two other major proof-of-stake (PoS) networks, operate with 14-15% inflation, while for Polkadot (DOT) this metric is around 10%.
Ultra-sound money thesis is gone: ETH in search of new narratives?
In general, the analyst admits that Ethereum is no longer an outlier with a net deflationary supply and, like other infrastructure layers, requires another way to be valued.
At the same time, the Ethereum (ETH) community outlines four bullish monetary narratives for ETH even in the current situation.
Ethereum is firing on all cylinders:
– ETH is the dominant asset across all major L2s.
– ETF unlocking a new paradigm for institutional investors.
– Healthy and sustainable issuance through PoS + EIP-1559.
– More users and devs onboarding via L2s than any other ecosystem.— liam 📜 (@daddysether) August 30, 2024
Liam, a community manager of Ethereum’s L2 Scroll, treats current ETH tokenomics as “healthy and sustainable issuance” that allows Ethereum (ETH) to remain a dominant smart contract ecosystem.
The Ethereum (ETH) price is sitting at $2,520, being 0.3% down in the last 24 hours.