In recent developments within the Ethereum network, there has been a noteworthy drop in gas fees. On October 8, the average gas fee declined to 8.8 Gwei, reaching levels not seen since October 2, 2022, when the average gas fee on the network was 8.4 Gwei, according to Etherscan data. To understand the significance of this drop, it is important to note that Ethereum’s gas prices are typically measured in Gigawei (Gwei), which is equivalent to 10^9 Wei. Wei represents the smallest denomination of ETH, with 1 ETH being equal to 10^18 wei.
Ethereum has fees reach new lows
The reduction in gas fees can be attributed to various factors, primarily a decrease in user activity on DeFi applications, NFTs (non-fungible tokens), layer-2 networks, and Telegram bots. Notably, the weekly trading volume for NFTs saw a substantial decline, reaching two-year lows, as reported by data analyst Hildobby using a Dune dashboard. This decline in NFT trading volumes has been a trend throughout the year. Additionally, the activity of Telegram trading bots, which gained popularity in the second quarter of the year, also saw a decrease in activity at the start of October, as indicated by a Dune dashboard from TK Research.
Significantly, heavy users of the network, such as Uniswap, 1inch, and MetaMask, have witnessed a considerable drop in gas consumption. Data from Nansen 2.0 reveals that these entities have experienced double-digit reductions in gas consumption since the previous week. Furthermore, data from Nansen 2.0 shows that the top gas spenders on the network, including exchanges like Binance and Coinbase, as well as layer-2 networks like Arbitrum, Optimism, and Base, have collectively spent 30% less compared to the previous week.
Analysts debate the effect of the transition on the network
This is noteworthy because it’s the first time that low-fee layer-2 networks have experienced a downtick in gas consumption since the previous year, as reported by data analyst Funnyking’s Dune dashboard. One important consequence of these changes is that the network has transitioned into an inflationary state since the beginning of September 2023. As gas fees plummeted, the amount of Ethereum burned hit its lowest point for the year on a Monday, with only 7,084 ETH being burned. The last time it experienced such minimal burn levels was on September 19.
According to a Dune dashboard, this happened shortly after the Ethereum Merge update which introduced the burning mechanism. This shift towards an inflationary state is particularly noteworthy for Ethereum. Currently, Ethereum’s supply is expanding at a daily rate of approximately 1,450 ETH, which is equivalent to around $2.2 million worth of Ethereum, according to data aggregator Ultra Sound Money. At this rate, the annual inflation rate stands at 0.44%. The decline has significant implications for Ethereum, as it has transitioned into an inflationary state with minimal ETH burn levels. It remains to be seen how these changes will impact the broader Ethereum ecosystem and its users.
