As global financial institutions wrestle with record levels of inflation, Ethereum is facing an inverse dilemma.
Since Saturday, ETH supply has dropped by over 4,000 tokens, according to data from ultrasound.money, but saw no corresponding price boost. ETH’s price, despite a lowered supply, has fallen some 3.6% in the same period, to $1,307 at writing.
The turn marks the first deflationary run—where more ETH is destroyed than created—since the Ethereum network’s landmark move to prove of stake in September.
All Ethereum transactions require so-called gas fees, which increase Ethereum’s security by preventing the network from being overloaded with malicious requests. The greater the traffic on the Ethereum network at a given time, the higher gas fees will soar.
Gas fees are pocketed by the validators who process all ETH transactions. Since the debut of a network upgrade called EP-1559 last August, however, a portion of every gas fee has also been destroyed, to automate transaction prices and limit the supply of ETH.
Beginning Saturday, the cost and volume of gas fees started burning more ETH than was being concurrently created via staking—the post-merge process by which ETH is now generated. Since then, the total amount of ETH in circulation has dropped by 4,001 ETH and counting, with the rate of burning still continuing to outpace the rate of ETH creation.
Average gas fees on the network have meanwhile spiked 218% since Friday,…
