Ethereum Average Transaction Fee Drops
The average transaction fee on the Ethereum network has reached its lowest point this year, which corresponds to a decrease in on-chain activity. According to blockchain analytical firm Santiment, transaction fees have dropped to $1.15 per transaction, the lowest level since December of last year.
This decline in transaction fees can be attributed to a recent decrease in network activity. On September 21, Binance conducted routine asset consolidation across various wallets, causing the network’s average transaction fee to exceed $10. However, due to the current market conditions and the cooling of Ethereum’s network activity, these transactions had a less pronounced impact on gas fees.
This decrease in network activity is seen as a potential positive for Ethereum by market observers. Santiment suggests that declining fees often align with increased network utilization, which could potentially boost the price of ETH and contribute to a market cap recovery.
ETH Network Turns Inflationary
As Ethereum network fees hit a yearly low, the digital asset has transitioned back to an inflationary phase with fewer tokens being burned. In the last seven days, the supply of Ethereum has increased by 6,371 ETH.
The lead developer at Blockchair, Nikita Zhavoronkov, explains that ETH is becoming inflationary because the network fees intended to burn ethers are being directed elsewhere, such as Ethereum’s own layer-2 solutions and competing EVM networks like BNB and Avalanche C.
The move to a proof-of-stake algorithm was supposed to reduce Ethereum’s supply through burning, but the decrease in network activity has hindered this burn rate. Additionally, the rise of layer-2 networks has shifted most of the network activity away from ETH’s mainnet.
Hot Take: Implications for Ethereum
The decrease in transaction fees and the transition to an inflationary phase have significant implications for Ethereum. While lower transaction fees may attract increased network utilization, it remains to be seen whether this will lead to a recovery in ETH’s market cap.
Furthermore, the shift of network activity to layer-2 solutions and competing networks raises questions about Ethereum’s role as the primary platform for decentralized applications. As the cryptocurrency landscape evolves, Ethereum will need to adapt and innovate to maintain its position as a leading blockchain platform.
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