Ethereum’s Transition to Inflationary Model in 2022: Exploring the Reasons Behind the Change

Ethereum has entered an inflationary phase for the first time since 2022, a departure from its deflationary pattern observed from late 2022 to early 2024. Recent data from the network indicates a net increase in the supply of Ethereum during the period from January to July 2024. Over this time frame, Ethereum saw the emission of 540,958 ETH, with 465,657 ETH burned, resulting in a net addition of 75,301 ETH. This shift in Ethereum’s supply dynamics has been highlighted in a recent report by Coingecko, showcasing a significant deviation from its previous trend of decreasing supply due to the burning mechanism in place.

The implementation of EIP-1559 in June 2021 led to the incineration of a substantial 4.36 million ETH on the Ethereum network. However, the burn rate has exhibited notable fluctuations throughout 2024. The second quarter witnessed a sharp decline in the amount of ETH burned, with only 107,725 ETH destroyed, marking a substantial 67.7% decrease from the first quarter’s figure of 333,555 ETH burned. July 2024 recorded the lowest burn rate for the year, with only 17,114 ETH burned, reflecting a 35% drop from the previous month.

In contrast, the first quarter of 2024 experienced a deflationary trend as 220,454 ETH were emitted versus 333,555 ETH burned, resulting in a reduction of 113,100 ETH from the total supply. This trend shifted in the second quarter as emissions surpassed burns, with 228,543 ETH added to the network and only 107,725 ETH burned, leading to an increase in the supply by 120,818 ETH.

Uniswap emerged as the top contributor to ETH burning, having incinerated 71,915 ETH in 2024. However, its burn rate experienced a significant decline of 72.4% in the second quarter compared to the first. ETH transfers ranked as the second-largest contributors, burning 33,538 ETH year-to-date, with their burn rate also dropping by over 70% from the first to the second quarter. Tether (USDT) secured the third spot, burning 23,332 ETH in 2024, with a similar decline in its burn rate.

The collective efforts of the top 10 ETH burners accounted for 39.2% of the total ETH burned this year. Notable contributors to ETH burning in the past include the Telegram trading bot Banana Gun, which was responsible for burning 11,060 ETH. The decrease in burn rates across major protocols signals a broader slowdown in activity and transactional volume on the Ethereum network.