After the “EIP1559” protocol ineffective…Ethereum inflation reaches dangerous levels
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Answer After the “EIP1559” protocol ineffective…Ethereum inflation reaches dangerous levels
Ethereum fees have been very low over the past few months, and the number one reason can be traced back to the declining popularity of the DeFi and NFT tokens industries, which has led to a drop in network usage.
This caused another problem that investors thought they would never encounter after implementing the “EIP1559” upgrade.
According to Glassnode data, Ethereum gas prices are currently at the May 2020 level, when the price of Ethereum was around $200.
With fees on the network reaching extremely low values, the amount of Ethereum burned by the “EIP1559” protocol has reached an all-time low with only 11% of the issued cryptocurrency removed.
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This means that Ethereum has become more inflated since the coin-burning mechanism was implemented, which was supposed to make Ethereum more deflationary.
Prior to the “merge” upgrade, investors expect Ethereum’s supply to continue to increase given that network usage appears to be still at a very low level.
The lack of deflation effect, means that the value of Ethereum will not increase until the deflation mechanism is back in operation effectively.
We’ve already seen the rapid growth of Ethereum when the DeFi and NFT industries were booming, confirming that burning supplies and offering Ethereum is only a side effect.
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Previously, many Ethereum enthusiasts had bet on deflation as one of the main drivers of the Ethereum price hike.
This was based on the fact that investors would start to sell less and put more pressure on the current supply, and as the demand for the coin increased in the future, investors expected the Ethereum deflation to rise further.
Unfortunately, the lack of demand for cryptocurrencies had a greater impact on the price of Ethereum and reduced the effectiveness of the deflation.
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