In recent weeks, Ethereum’s on-chain activity has noticeably cooled, with a sharp decline in daily ETH burn volume. On March 22, the amount of ETH destroyed dropped to its lowest level since the implementation of EIP-1559, raising concerns about waning demand for Ethereum’s block space and broader ecosystem engagement.
This shift isn’t just a blip—it reflects deeper trends in user behavior, network usage, and market sentiment. As transaction demand slows and Layer 2 solutions gain traction, questions are emerging: Is Ethereum losing its edge? And what does this mean for ETH’s long-term value proposition?
Understanding ETH Burns and EIP-1559
Ethereum introduced EIP-1559 in August 2021 as part of its effort to improve transaction fee transparency and introduce deflationary mechanics. The upgrade established a base fee—a dynamically adjusted gas price that gets permanently burned (removed from circulation) with every block.
The goal was twofold:
- Improve user experience by stabilizing gas fees.
- Create deflationary pressure on ETH supply during periods of high network usage.
When demand for block space is strong, more transactions occur, leading to higher base fees—and more ETH burned. In theory, sustained high activity could make ETH a deflationary asset, where more tokens are burned than issued through staking rewards.
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However, recent data paints a different picture.
Record-Low ETH Burn: A Sign of Cooling Demand
On March 22, Ethereum recorded a mere 53.07 ETH burned in a single day—worth approximately $106,000 at current prices. This marks the lowest daily burn since EIP-1559 went live, according to data from The Block.
To put this into perspective:
- At its peak during the 2021 bull run, daily ETH burns exceeded 15,000 ETH.
- Even in early 2024, average daily burns were in the thousands of ETH.
- Now, the network is burning less than 60 ETH per day—a drop of over 99% from peak levels.
Ultrasound.money estimates that at the current burn rate over the past seven days, ETH’s annual supply growth stands at 0.76%. This means ETH is still inflationary, contrary to the deflationary expectations many investors had hoped for.
Why Are Burns So Low?
ETH burns are directly tied to network usage. Lower burns indicate:
- Fewer transactions
- Lower gas fees
- Reduced competition for block space
All signs point to weaker demand for Ethereum’s core layer.
Broader On-Chain Activity Declines
The drop in ETH burns is not an isolated metric. It aligns with broader declines across key on-chain indicators:
- Active addresses (7-day MA): Dropped to their lowest level since October 2024.
- New address creation: Slowing significantly, suggesting fewer new users entering the ecosystem.
- Daily transactions and transaction volume: Both have seen substantial decreases over recent weeks.
These metrics collectively signal a slowdown in user engagement on Ethereum’s mainnet. While some of this can be attributed to seasonal trends or macroeconomic factors, structural shifts in the ecosystem may also be at play.
The Rise of Layer 2s: Shifting Value Away from Mainnet
One of the most significant developments affecting Ethereum’s economics is the rapid growth of Layer 2 scaling solutions such as Arbitrum, Optimism, and Base.
These networks process transactions off the main Ethereum chain but settle finality on it—offering faster speeds and lower costs while maintaining security.
But here’s the catch:
While L2s rely on Ethereum for security, they capture most of the transaction fee revenue themselves, burning little to no ETH on the base layer. As a result:
- More activity moves off-chain.
- Less demand for Ethereum block space.
- Lower base fees → reduced ETH burns.
Geoffrey Kendrick, Head of Global Digital Asset Research at Standard Chartered, recently highlighted this trend as a key reason for revising ETH price forecasts downward.
Institutional Outlook: Standard Chartered Cuts ETH Forecast
In a notable shift, Standard Chartered slashed its year-end 2025 Ethereum price target from $10,000 to $4,000—a 60% reduction.
The bank cited two primary factors:
- Weaker-than-expected on-chain activity on Ethereum mainnet.
- The growing dominance of Layer 2 platforms, which are siphoning transaction volume and fee revenue away from the core chain.
While the bank still sees long-term potential in Ethereum’s role as a settlement layer, it acknowledges that near-term fundamentals have weakened.
This revised outlook reflects a broader sentiment among institutional analysts: Ethereum’s value accrual model is evolving—and not necessarily in ways that benefit ETH holders in the short term.
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Frequently Asked Questions (FAQ)
What is ETH burning?
ETH burning refers to the permanent removal of Ether from circulation. Under EIP-1559, a portion of transaction fees—called the base fee—is automatically burned with each block. This mechanism aims to reduce inflation and potentially make ETH deflationary during high usage periods.
Why is ETH burn important?
ETH burns reduce the total supply over time. If more ETH is burned than issued via staking rewards, the net supply decreases—creating deflationary pressure that could support price appreciation. Low burn rates suggest weak network demand and may dampen bullish sentiment.
Are lower ETH burns bad for investors?
Not necessarily—but they’re a warning sign. Sustained low burns mean reduced scarcity pressure on ETH supply. While other factors like staking and adoption matter, consistently low activity can weaken long-term value accrual arguments.
Where is Ethereum activity moving?
Much of the growth is shifting to Layer 2 networks like Arbitrum, Optimism, and Base. These platforms offer cheaper and faster transactions while relying on Ethereum for security. However, since they don’t burn much ETH, this migration reduces fee revenue on the mainnet.
Can Ethereum become deflationary again?
Yes—but only if on-chain activity surges significantly. High transaction volume from DeFi, NFTs, or new use cases could spike base fees and increase burns. Until then, ETH remains slightly inflationary under current conditions.
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Does low mainnet activity mean Ethereum is failing?
No. Ethereum is transforming into a settlement layer for a broader ecosystem of L2s. While mainnet usage dips, overall ecosystem innovation continues. Success may no longer be measured solely by on-chain metrics but by its role as a secure foundation for scalable applications.
Looking Ahead: What’s Next for Ethereum?
Despite current slowdowns, Ethereum remains the backbone of decentralized finance and smart contract innovation. The ecosystem is evolving—not declining.
Future upgrades like Proto-Danksharding aim to further boost scalability and reduce L2 costs, potentially driving even more activity off the main chain. But if done right, this could strengthen Ethereum’s long-term position as a secure settlement layer.
For investors, the key takeaway is this:
Ethereum’s value proposition is shifting from direct user transactions to ecosystem-wide infrastructure support. Short-term burn rates may stay low—but that doesn’t negate its foundational role in Web3.
Monitoring both mainnet metrics and L2 adoption trends will be essential for understanding ETH’s true economic health.
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