Ethereum has recently recorded a significant decline in network activity, marked by a record low in the amount of ETH burned and a downturn in on-chain metrics.
What is happening with Ethereum?
Alarming Indicators in the Ethereum Ecosystem
Ethereum is experiencing a concerning phase, with the amount of ETH burned through transaction fees hitting an all-time low, reflecting a substantial decrease in on-chain activity. According to The Block, only 53.07 ETH, approximately $106,000 at current market prices, were burned on March 23. This is the lowest figure recorded since the implementation of the EIP-1559 mechanism.
Source: The Block
Ethereum previously stood out with its ETH burning mechanism introduced through EIP-1559, which helps control inflation and can even render ETH a deflationary asset during periods of high network activity. During times of high demand, the amount of ETH burned can exceed the amount issued, reducing supply and creating upward price pressure. However, the current situation is quite the opposite. As demand for Ethereum’s network decreases, the amount of ETH burned also plummets, causing ETH supply to return to an inflationary state.
At the current 7-day burn rate, ETH supply will increase by 0.76% per year, rather than decreasing as before. This could undermine the long-term economic model that Ethereum aims for. Besides, with extremely low traffic from the ecosystem, Ethereum’s gas fee has hit a record low of just 0.879 gwei per transaction.
Source: Ultrasound Money
The record low in ETH burning is not the only negative indicator. Besides, there are several metrics that show the downturn activities of the ecosystem:
- The 7-day moving average of active wallets has dropped to its lowest level since October 2024, clearly reflecting users’ waning interest in the network.
- The number of new addresses has also decreased significantly, indicating fewer participants are joining the Ethereum ecosystem compared to before.
- Both the number of transactions and daily transaction volume have declined in recent weeks.
- Ethereum’s 24-hour revenue has also fallen to just $100,000.
Source: The Block
What is the root cause?
The rise of Layer-2 solutions like Arbitrum, Optimism, and Base is diverting users and liquidity from Ethereum’s Layer-1, thanks to faster transactions and lower fees.
This shift means Ethereum’s ecosystem is growing, but Layer-2s are capturing most of the revenue, as noted by Standard Chartered’s Geoffrey Kendrick. As a result, Ethereum’s price outlook has weakened, with its 2025 target slashed from $10,000 to $4,000.
Previously, high Layer-1 fees maintained ETH’s scarcity, but with revenues dispersing across Layer-2s, Ethereum’s long-term price growth is at risk. If this trend continues, Ethereum may lose its deflationary status.
ETH suddenly hit the peak today
Despite all the unfavorable news surrounding the Ethereum ecosystem over the past month, ETH ETH made an impressive surge on March 24, briefly reaching nearly $2.1K.
Source: Coingecko
It seems that the Ethereum community and its supporters have not lost hope, still anticipating a potential price rebound in the near future. Many are looking ahead to key economic events, including decisions from the FED and FOMC, which could influence ETH’s next move.
Learn more: Ethereum Price Prediction: ETH Technical Analysis
