Burn Baby Burn - The Daily Gwei #368
ETH just had its first deflationary week.
Over the last 7 days the Ethereum network burned more ETH than it issued - yes, that’s right - Ethereum has been deflationary for over 7 days now. Due to the current PoW issuance (4.5%), a deflationary ETH was not something that was expected to happen until The Merge but due to the on-going high fees, the Ethereum network is currently burning almost 13,000 ETH per day or $55 million at time of writing - truly insane when you really think about it.
This is Ethereum’s ultra sound money design proving itself in practice and as I said above, many people didn’t believe we would see a deflationary ETH before the network switched to Proof of Stake - but here we are. Also, contrary to popular belief, EIP-1559 has not increased gas prices and has in fact helped considerably with spikes in demand (such as during hyped-up NFT mints) which has led to a smoother network overall. Though it is pretty amazing that Ethereum has such consistently high demand regardless of the fee burning - people are collectively paying $50+ million a day just to get their transactions processed!
I’ve seen some people hit back at Ethereans celebrating this deflationary ETH milestone by saying that these high fees are a negative because it prices users out of the network. Though, as all of you avid Daily Gwei readers would know by now, Ethereum’s layer 1 is doing exactly what it is meant to be doing as a settlement layer for high-value transactions. Obviously this is lost on many people in the ecosystem (especially the newer ones) and I constantly see viral tweets about how Ethereum isn’t the “future of finance” because of the high fees. This is obviously why layer 2’s are so critical to Ethereum - they allow everyone to access the Ethereum we all know and love without the high costs (and also without the relatively slow transactions).
Speaking of layer 2’s - they are obviously seeing a lot of adoption lately and I’m encouraged every time I see someone change their tune about Ethereum after using a one of them. In saying that, there is still a large UX barrier for most users onboarding onto layer 2 and that is the layer 1 bridging costs. Many users can not afford or do not want to pay a $30 to $50 bridging cost just to get onto a layer 2 - we need better solutions here such as batched onboarding, direct fiat on-ramps and CEX to layer 2 bridges. Of course, these things are coming, but until they are live I do expect some poor narratives to still persist around the high gas fees but I will continue to do my best to try and educate those that will listen.
The demand to use the Ethereum network has never been greater and I’m just really glad that most of the fee revenue generated by the network is now going to ETH holders (in the form of burned ETH) instead of miners. EIP-1559 is an amazing mechanism and really helps to ensure that Ethereum’s security, monetary policy, and overall network health remain sustainable far into the future - now we just need to work harder at getting more people to understand that Ethereum’s layer 1 is a settlement layer!
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.