The protocol has been "burning" ETH, which is crypto language meaning destroying, at a tremendous rate as part of EIP 1559, issued back in August 2021. EIP stands for Ethereum Improvement Proposal.
According to EIP-1559, a percentage of each Ethereum transaction is discarded. This includes a component of every NFT trade, yield strategy, and even straightforward token transfer. Everything is currently being set ablaze.
Since the implementation of EIP-1559, a total of 2.8 million ETH, equivalent to around $4.6 billion at today's values, has been taken out of circulation.
According (1) to Ultrasound Money, the Ethereum protocol has been responsible for the burn of more than 16,364 ETH in the past week, at a pace of around 1.62 ETH being lost per minute.
As a result of this burn process, more ETH is being destroyed than is being distributed to miners. Since EIP 1559, the increase of supplies has slowed down to a rate of -1.06% per year. Because of this, Ethereum is more conducive to deflation than Bitcoin, which was widely regarded as the first form of sound money.
The following graphic illustrates how the network's token supply has evolved during the several checkpoints and upgrades that have been implemented. The area that is dashed shows that it is anticipated that the deflationary tendency will continue throughout the course of the following two years.
The only plausible explanation for why this prediction won't come true is if there is a steep drop in the quantity of ETH that is bought and sold. Keep in mind that ETH is destroyed whenever a transaction occurs on the network.
This burn rate might serve as an additional metric for determining the level of adoption of the network.
What is Driving the Ethereum Burn Rate?
Consequently, which application areas (as described by Ultrasound Money) drive the most adoption of Ethereum? The activities surrounding NFT and DeFi have been the primary gasoline sources for Ethereum's fire during the past week.
These two categories are to blame for losing about 8,000 ETH this week. The leading companies in each category—OpenSea (1,298 ETH) and Uniswap V3 (876 ETH)—were the primary contributors to this loss of value.
This statistic also sheds a bit more light on the stablecoin competition between USDT and USDC, which is helpful. We are all aware that the former has a market cap that is still light years ahead of the latter, but the product that Tether is providing is also accountable for the destruction of more than three times as much Ethereum.
During this week, USDT transactions consumed around 705 ETH, whereas USDC transfers consumed just 228 ETH. To put it another way, USDT use continues to lead the pack in terms of adopting stablecoins on Ethereum.
The Ethereum ecosystem will keep watching it burn as long as network movement occurs at its current rapid rate.
Meanwhile ETH has been rising since the year start and is trading at $ 1,656 per token.