Ethereum, the second largest cryptocurrency by market cap, has witnessed a significant decline in average transaction fees. Accordingly, it marked the lowest point of the year. This decrease in transaction fees coincides with a decrease in on-chain activity. This change occurs at a time when Ethereum supply has returned to an inflationary phase. On the other hand, the decreasing transaction fee also affects those who make cross-chain transactions in anticipation of the airdrop. Accordingly, they pay less transaction fees.
Decreasing fees due to decreased activity for Ethereum
Blockchain analysis firm Santiment draws attention to the average transaction fee on the Ethereum network. It reported a drop to $1.15 per transaction, a level not seen since December of the previous year. The decline in Ethereum ETH’s transaction fees can be attributed to the recent decrease in network activity. To provide context, on September 21 Binance, a leading cryptocurrency exchange, made a move. Accordingly, it carried out transactions that temporarily increased the network’s average transaction fee above $10. This transaction was part of a routine asset consolidation process between various wallets.
If these transactions had occurred earlier in the year, during the meme coin craze or peak NFT transaction volumes, their impact on network fees may have been less significant. However, Binance’s actions attracted attention. There was no other significant network activity coinciding with the event. Therefore, it stands out as a significant impact on gas prices. This decline underscores Ethereum ETH’s response to current market conditions. It also causes network activity to decrease.
Positive outlook for Ethereum
Market observers see this decline in network activity as a potential positive sign for Ethereum. Santiment suggests that decreasing ETH fees generally align with increased network usage. According to the firm, this trend will potentially cause the price of ETH to increase. It will also contribute to a recovery in market capitalization.
“Ethereum network fees have fallen to a 2023 low of just $1.15 per transaction,” Santiment said. Historically, we see usage begin to increase as ETH becomes more affordable to circulate. “The increased benefit will then lead to improved market value levels.” says.
ETH network goes into inflationary mode
Ethereum’s network fees are reaching their lowest level in the year. On the other hand, the digital asset enters an inflationary phase as fewer tokens are burned. As reported by Ultrasoundmoney, Ethereum supply increased by 6,371 ETH in the last seven days.
Nikita Zhavoronkov, lead developer of Blockchair, explained that Ethereum has become inflationary due to network fees being distributed elsewhere and not being used to burn ETH as originally intended. He noted that ETH fees, designed to reduce token supply, are now predominantly active in Ethereum’s Layer 2 solutions and rival Ethereum Virtual Machine (EVM) networks such as Binance Smart Chain (BNB) and Avalanche C.
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