ETH Deflation? “London”, Staking and DeFi throttle ether supply

Three weeks after the hard fork “London”, the first effects of the EIP-1559 are noticeable. However, other developments in the network also contribute to the shortage of Ethers.

The crypto market picks up the red pencil this weekend. The total market capitalization drops by 2.4 percent compared to the previous day, the lead over the 2 trillion mark thus melts to 68 billion US dollars. After a brilliant start to the week, in which the BTC price had put its feelers over USD 50,000 for a long time, the crypto reserve currency is also losing ground. At the time of going to press, the BTC price was trading at 46,892, down 2.1 percent. In the 30-day trend, however, the largest cryptocurrency is doing quite well with a plus of 20 percent.

Similar picture for No. 2: ETH drops just under two percentage points on a daily basis and thus slips to 3,101 US dollars. But even with the second largest crypto currency, things look pretty good from a macro perspective, the monthly counter recorded a 35 percent increase in value. The hard fork “London”, which was carried out on August 5, played a major role in this. With the “improvement upgrade” EIP-1559, it introduced a token burn mechanism and a fee model based on block utilization. The expectations were high, which was not least evident from a small preliminary rally. Around three weeks later, the effects of the EIP-1559 are already showing their effects.

London’s Burning: Over 100,000 ethers burned since hard fork

A new fee system has been in place at ETH since the Hard Fork London. These have been standardized at a basic fee, while the block size has been doubled from 12.5 million to 25 million gas units. By increasing the potential block utilization, which is supposed to keep a 50 percent utilization rate as an average, the charges in the network should decrease significantly during normal operation. But the upgrade should not only affect user-friendliness. A very decisive side effect is the throttling of the following supply volume. Because the fees do not flow to miners as they did before, they are “burned”, that is, withdrawn from circulation.

This deflation effect can already be observed. Around 106,000 ethers were loud oklink meanwhile destroyed. But not only the EIP-1559 causes a shortage of ether. Almost seven million ethers are now stranded in the deposit contract, the “staking pot” of the ETH Beacon Chain, and thus also disappeared from the circulating supply – at least temporarily -. Although they have not been destroyed, the staking trend, which gives a foretaste of the hype to be expected at the ETH 2.0 launch, is causing a throttling of the market. In addition, the exchange reserves are also falling. With 15.5 million available ethers, the exchange reserves are currently at the level of November 2018.

Gas charges: no relaxation in sight (yet)

In contrast to the supply volume, the hard fork has not yet really made itself felt in the gas charges. These have normalized significantly compared to the first half of the year. Nevertheless, since London they have increased from an average of 64 Gwei to the current 97 Gwei.

This is primarily due to the reignited hype on the NFT market, which is largely played out on the Marriageum Blockchain. One fifth of all gas charges are currently not part of the NFT trading platform Opensea, which has seen peak values ​​of over $ 200 million in trading volume in the past few days.

The largest share can be traced back to the NFT project Art Blocks, which alone is responsible for a trading volume of 254 million US dollars in the last seven days.

ETH hash rate record high

Miners therefore cannot complain about falling revenues. If, in connection with the destruction of fees by the hard fork, a wage cut was still assumed for the “ether graves”, it turns out that the income of the miners has hardly changed since then.

The fact that speculations about an incipient withdrawal of the miners, who will ultimately be retired at the latest when the final switch to ETH 2.0 is reached, is proving to be unfounded, is also shown with a view to the computing power in the ETH network. The hash rate only reached a new record high yesterday at 622 terahashes per second (TH / s).

Last but not least, the DeFi market carries where the current Total Value Locked (TVL), at $ 82 billion, just $ 5 billion away from its all-time high, is contributing to ETH’s growth. 9.8 million ethers are currently bound in DeFi protocols, which, together with the fee destruction, the staking trend and falling stock market stocks, should be factored into the price development in the long term.