Ethereum's Supply Has Been Influenced by the Drop in DeFi and NFT Sales
Supply dynamics in Ethereum are constantly being upended amid this year's dizzying drop in DeFi, NFT sales, and meme coin trading. Depending on which time frame you are looking at, Ethereum can be deflationary or inflationary: on a seven-day model, Ethereum becomes more scarce, whereas on a yearly framework, it issues more than it burns. What’s going on with the network’s supply dynamics, why are transaction fees prices dropping, and how does it look for the future of Ethereum?
Back in August 2021, Ethereum implemented EIP-1559, which introduced a fee-burning mechanism. Since then, the supply has had a direct connection to gas prices. Higher gas prices mean more ETH getting burned and vice versa. This set the table for last year’s merge. The transition from proof-of-work to proof of stake ended up reducing the issuance of ETH by 90%, leading many to claim that the network was now “ultrasound money.” But that label has been put to the test amid dwindling gas prices and lesser transactional volume. Amberdata’s head of research, Chris Martin, told Decrypt that the reasons for declining gas prices are three-fold.
