Since the implementation of EIP-1559, more than 4.6 million ETH have been burned, equivalent to over $13.5 billion. However, despite this, the total supply continues to grow.
The ETH Burning Mechanism
Since the EIP-1559 upgrade on August 5, 2021, Ethereum introduced a significant monetary innovation: the automatic burning of a portion of transaction fees. Over 1438 days, this mechanism has allowed for the burning of 4.6 million ETH, approximately $13.57 billion at current market values. This results in an average of 2.22 ETH burned every minute, a figure that correlates strongly with the level of activity on the blockchain. The main contributors to the burning of ETH include:
- Regular ETH transactions: 375,959 ETH - Opensea (NFT): 230,051 ETH - Uniswap V2 (DEX): 227,045 ETH - Tether (USDT) transfers: 210,070 ETH.
Thus, while the burn mechanism is praised for its transparency, it fails to compensate for the amount of newly issued ETH.
Persistent Inflation in Ethereum
Despite the significant burning of ETH, the Ethereum network continues to issue more ETH than it burns. Since the London hard fork, 3,695,537 ETH have been created, injecting about $10.89 billion of additional value into the ecosystem. The median annual inflation rate during this period is 0.801%, nearly equivalent to Bitcoin's (0.809%) but significantly lower than Ethereum's previous Proof-of-Work model, which would have generated an inflation of 3.394%. This gap between burn and monetary creation shows a policy in unstable balance.
The Economic Model of Ethereum
As a result of the burning and issuance, inflation is controlled. Recent data shows that the emission rate has dropped to 0.723%, with 16,745 newly created ETH in one week. This evolution seems linked to a decrease in network activity, thus less pressure on the burn. Therefore, the balance between burn and creation strongly depends on transaction volume and the network's usage by decentralized applications. In the long run, maintaining an inflationary supply, even if moderate, could pose problems if the burn does not keep pace during times of low activity.
Thus, despite the substantial amount of ETH that has been burned, Ethereum continues to face the challenging task of controlling inflation and ensuring the stability of its economic model.
