The Ethereum network’s average transaction fee has fallen to an annual low of $1.15, coinciding with the decline in on-chain activity. Declining network activity and transaction fees have caused ETH’s supply to spiral into deflation.
So what does this decline mean for the ETH price?
Blockchain analytics firm Santiment announced that transaction fees on the Ethereum network have dropped to $1.15 per transaction, the lowest level since last December. It was specifically emphasized that this decline occurred when the ETH supply returned to an inflationary phase.
Ethereum average transaction fee drops
The decline in Ethereum’s transaction fees was attributed to the recent decline in network activity. To provide context, on September 21, Binance increased the network’s average transaction fee to over $10 while performing routine asset consolidation across various wallets.
If these transactions had occurred earlier in the year, when the meme coin craze or NFT trading volumes were at their peak, their impact on network fees may have been less pronounced.
Additionally, Binance’s actions significantly impacted gas fees because there was no other significant network activity coinciding with the event. This underlined that Ethereum’s network activity has cooled in response to current market conditions.
Market watchers interpreted this decline in network activity as a potential positive move for Ethereum. Santiment noted that decreasing Ethereum fees often align with increasing network usage. It was also stated that this situation could potentially increase the price of ETH and contribute to the recovery of its market value:
“Ethereum network fees have fallen to a 2023 low of just $1.15 per transaction. Historically, we see usage begin to increase as ETH becomes more affordable to circulate. “The increased benefit could then lead to a recovery in market value levels.”
ETH network turns into inflation
With Ethereum network fees falling to their lowest level in the year, the digital asset has become inflationary as fewer tokens are burned. Over the past seven days, Ethereum’s supply has increased by 6,371 ETH, according to Ultrasoundmoney.
Blockchair’s lead developer, Nikita Zhavoronkov, explained that ETH is inflationary due to network fees.
“Ether fees, which are supposed to burn ethers, exist everywhere, but not on Ethereum,” Zhavoronkov said. said.
Ethereum’s switch to a Proof-of-Stake algorithm last year was aimed at reducing its supply through burning. However, the reduction in network activity prevented this burn rate. Likewise, the proliferation of layer-2 networks is increasingly seeing the majority of network activity, pushing ETH’s mainnet into the background.
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