On August 10, the average gas fee on the Ethereum blockchain dropped to 1.9 gwei due to low activity on the Ethereum blockchain, which led to an increase in the rate of inflation of ETH coins. This is the lowest level since mid-2019 and is almost 98% below the yearly high of 83.1 gwei in March, according to Dune Analytics.
Let us remind you that network commissions in the Ethereum blockchain are called “gas”. It is measured in units denoted by Gwei, which is a fractional part of the Ethereum coin, namely 0.00000001 ETH. Gwei are used to pay for the computational resources in Ethereum required to carry out every blockchain operation, including transfers, exchanges, token conversions, interaction with protocols, and NFT issuance. The price of gas is determined by market demand for processing transactions on the network. At times of increased user activity, the cost of operations can rise to enormous levels. After an update under the working title London in 2021, the Ethereum blockchain introduced an ETH “burning” mechanism, which involves the destruction of a small portion of coins in each transaction. This method is used to reduce cryptocurrency inflation and is considered one of the factors increasing demand for it. All burning operations are recorded on the blockchain as a transaction. The mechanism is designed in such a way that the higher the network commission and transaction frequency, the more ETH is burned. At times of high activity, it may turn out that more ETH is destroyed than new coins are created. This makes the cryptocurrency temporarily deflationary. Thus, any change in Ethereum transaction fees affects coin inflation. According to Ultra Sound Money as of August 12, the blockchain inflation rate has increased to 0.57% per annum, which is about 25% faster than at the end of June 2024.
Given this data, Gnosis founder Martin Koppelman believes more activity and transaction prices are needed to reduce inflation rates, which have risen 10% in a week. According to Ultra Sound Money, about 14.3 thousand ETH ($35 million) were added to the open market, which may be due to the general activity in second-layer networks based on Ethereum, designed to scale the blockchain of the second largest cryptocurrency by capitalization. The number of transactions on the core network over the past 30 days was 33 million, according to Cointelegraph. During the same period, more than 200 million transactions were collectively recorded in the Base, Arbitrum and Taiko networks.
L2 solutions have become so popular that since 2021, about 50 such networks have already been created and most of them have their own token. The total capitalization of these tokens already exceeds $17 billion, according to Coingecko. In addition to the practical benefits for the main Ethereum blockchain, reducing the load on the network and, as a result, transaction costs for users, second-level solutions bring significant income to their beneficiaries. In particular, since the beginning of 2024, the Base L2 network from the largest US crypto exchange Coinbase has brought it more than $51 million in income in the form of commissions. The income of the creators of Arbitrum amounted to more than $35 million, Optimism – $28.4 million, zkSync – $23.4 million, according to Token Terminal data. And the total daily income of the six largest L2 solutions is around $200–300 thousand, according to the intoTheBlock terminal.
Meanwhile, venture investors increased investments in crypto projects in the second quarter of 2024 amid a slowing market, Bloomberg writes, citing a PitchBook report. Investments in cryptocurrency companies during this period amounted to $2.7 billion, which is 2.5% more than in January-March. This is the third consecutive quarterly increase in the total value of investments. Recent investments have focused on infrastructure projects such as new blockchains. Infrastructure investment fatigue has also grown, with more venture capitalists looking to investment opportunities in applications, which contributed to the slowdown in the second quarter. The overall rise in cryptocurrency prices this year and the ongoing institutional adoption of digital assets suggests that fundraising will continue to grow, says our analyst Konstantinas Sizovas.
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