On August 5, the Ethereum network activated the EIP-1559 update, also known as the "London Hard Fork". Along with increasing block sizes and introducing a kind of “base fee” system, this update also introduced a burn mechanism to the ETH network.
Some of the fees paid for the transactions were burned and removed from the circulation. More than 1.2 million Ethereum tokens have been burned since the London update went live, according to Dune Analytics data.
The reason why the burning mechanism works at such high speeds was shown as the explosion of NFTs, DeFi industry and Blockchain games, which work largely dependent on the Ethereum Blockchain.
The NFT market OpenSea, which is responsible for the burning of 135 million ETH tokens, that is, 500 million dollars, became the platform that contributed the most to this burning mechanism.
UniSwap V2, one of the decentralized exchanges (DEX), took the third place on the list, with 112,000 ETH tokens ($458 million) burned. Axie Infinity, one of the play-to-win blockchain games, was ranked eighth in the list with 116,000 ETH tokens ($59 million). Axie Infinity has been talked about with its recent decline in popularity.
Considering the price movement, the effect of the burning mechanism cannot be ignored. The balance of supply and demand, of course, also determines the price for Ethereum. With the decrease in the amount of ETH tokens in circulation, a kind of increase in demand can be experienced in bull markets and a positive contribution to the price can be made.
In addition, this situation has another effect: Deflation. As more of the new ETH tokens created by cryptocurrency miners are withdrawn from circulation through burning, the inflation rate of Ethereum is gradually decreasing.
In some periods when the number of transactions was high, this burning mechanism led to a decrease in the number of ETH tokens. During some periods in September, October and November, up to 16,800 ETH tokens were burned daily. In the current situation, the net supply of ETH is increasing by 13,000 to 14,000 daily tokens.
However, the reduction of transaction fees, which is intended to happen with the London update, is still not completed. With EIP-1559, block sizes were doubled, increasing to 25 million gas units.