Data analysis firm IntoTheBlock reports that the Ethereum network has entered a new era of low transaction fees and is once again testing a deflationary narrative for Ether (ETH).
According to IntoTheBlock’s data, Ethereum Blockchain transaction fees have reached their lowest level since April 2020, dropping by approximately 90% from their peak in May of this year.
In previous years, users of the Ethereum network frequently faced high transaction fees (also known as gas fees) due to the influence of bull markets. This congestion was caused by high activity in areas such as NFT trading and decentralized finance (DeFi) yield farming. However, the subsequent price decline in cryptocurrencies, reduced demand for NFTs, and a decrease in DeFi activity have resolved these issues.
The report also highlights the contribution of Layer 2 solutions, developed to scale and increase the capacity of Ethereum, in reducing transaction fees. This development allows Ethereum users to perform transactions at lower costs. However, this has caused an increase in the supply of ETH by keeping its inflationary effect intact.
Lucas Outumuro, research director at IntoTheBlock, stated that the decrease in transaction fees is testing the “ultra sound money” thesis of ETH. According to the data, ETH supply has increased by approximately 33,500 ETH worth $52 million in the last 30 days due to low network activity.
Outumuro noted that with the decrease in speculative activity and users continuing to migrate to Layer 2 solutions, transaction fees on the network are likely to remain at low levels. The report highlights that while NFT trading represented a significant portion of ETH supply in 2021 and early 2022, it only accounted for 8% in recent weeks. The report also states that the period of low transaction fees marks a significant transition for Ethereum, changing the narrative of high network revenue and deflationary supply through Layer 2 solutions, which promises to attract more users.