Over the past few months, Ethereum has experienced a significant decrease in user activity on its blockchain. This slowdown reduced the network burning speed – a mechanism that helps reduce the supply of ETH over time.
With a smaller number of tokens is burned, the circulating offer of ETH has increased, exerting inflationary pressure on the asset. As a result, the coin with all her might tried to maintain a stable price above the level of $ 2,000 in recent months.
The low burning rate is equal to the larger amount of coins in circulation
According to Ultrasoundmoney, 72 927 ETH, worth $ 134 million at current market prices, was added to the ETH circulating offer for the last month.
During the press, this is 120 730 199, which is significantly higher than the levels of D-Merge.
This increase in the ETH offer is due to a decrease in user activity in the Ethereum network, reducing its burning rate. The Ethereum burns mechanism, introduced through the EIP-1559, destroys part of the training camp in order to reduce the circulating offer of ETH.
However, this mechanism is directly related to the use of the network. Thus, when less transactions occur, less ETH is burned, which leads to a surge of the ETH proposal.
According to Etherscan, the daily amount of ETH burning has fallen by 95% since the beginning of the year. In fact, the network recently recorded the lowest number of coins burned in one day on April 20.
Why do Ethereum users leave blockchain?
Many users and developers migrate from Ethereum to Layer-2 (L2) solutions, such as optimism and arbiter. These networks offer a significantly lower transaction fee and faster execution, reducing the user’s activity on Ethereum Mainnet.
For example, as of April 30, the average transfer of transaction on Mainnet optimism was only 0.024 dollars. In contrast, the completion of the transaction directly on Ethereum costs on average in the amount of $ 0.18 on the same day, which is more than seven times more.
Moreover, thanks to the recent Meme Coin, Ethereum Killers, such as SOLANA, has gained significant support over the past few months, pushing users from L1.
Together, these trends led to a decrease in the number of Ethereum transactions, hence the low speed of burning the network.
How do Ethereum basics develop?
Ethereum user demand and subsequent growth of the ETH offer raised important questions about the power of its foundations.
When he was asked how Ethereum is currently compared with other Layer-1 (L1) networks against the background of a wider market weakness, Vincent Liu, investment director in Kronos Research, proposed his point of view.
“The foundations of Ethereum remain strong compared to other levels 1, especially when you consider that its total cost is blocked (TVL) in the amount of $ 368.921 billion, which positions it in the upper part of the leadership table,” Liu said.
Although Liu admitted that Ethereum ranks fifth in 24-hour training camps, behind Tron, Solana, Hyperilique, Bitcoin and BNB Chain. He emphasized that the network still “demonstrates significant demand and use.”
Temudzin Louis, general director of Wanchain, shares a similar perspective. Speaking with Beincrypto, Louis noted:
“Compared to other layers 1, the basics remain Ethereum. Unlike many layers 1 with aggressive inflation as part of their design, Ethereum Post-Merge architecture makes it potentially deflation. However, the advantages of the EIP-1559 depend on the activity of the chain. Nevertheless, this is a structural advantage over most competing layers 1S. ”
While increased activity in the solution of level-2 (L2) and “Ethereum killers”, such as SOLANA, possibly contributed to a decrease in the needs of users on Ethereum itself, Louis believes that the L1 network “remains a leader in decentralization and has an almost unsurpassed track record that continues to provide its place on the market”.
What about the price of ETH?
Even with strong basic principles, reducing activity in Ethereum creates problems for ETH in the short and middle perspective. Commenting this, Liu explained that lower network activities usually signaling the weaker demand for ETH.
At the same time, an increase in the release of coins in the network undermines the Ethereum deflation model, which was developed to support price raising.
“This combination can lead to bear prices,” Liu warned, “especially in the fact that investors turn to an alternative level 1, offering the best scalability and a lower fee.”
Kamodo’s cadan, technical director of the Komodo platform, also emphasized the role of macroeconomic factors:
“If Ethereum experiences an expanded decrease in use, the price can fall significantly depending on how much use falls, especially if the Fed continues its own policy of quantitative toughening compared to quantitative softening. Short -term, this may mean that the price is reduced to the range of $ 2000. If the trend continues, however, then the etherium may be in stretching or resigned. ”
Eth Eyes 2000 Breakthrough dollars on the background of RSI strengthening
Currently, ETH is traded at the level of 1834 US dollars, noting a drop in prices by 1% for the last day. Despite a brief rollback, bull pressure on the spot -market of the coin continues to strengthen, it is reflected as a result of the index of the relative power of the coin lifting (RSI).
During printing, this pulse indicator is 57.68. Eth RSI testimony signaling growing bull conditions. This indicates that Altcoin has a place to move up with increasing purchase pressure.
In this scenario, its price can break through over $ 2,027.
However, if the purchase of pressure loses the impulse, the cost of ETH can fall to $ 1733.
