Ethereum enters “deflationary season”, futures bulls are optimistic about the market outlook

Ethernet Square London upgrade EIP-1559 introduced a proposal to play a more and more significant utility. According to data from ultrasound.money, as of November 1, the amount of ETH burned has exceeded 700,000, worth about US$3.06 billion.

Calculated based on this destruction progress, ETH can be destroyed 3 million a year, more than half of the current annual increase of 5.4 million, reducing its annual inflation rate from 4% to 2.1%.

What is striking is that due to the recent ecological activity on the Ethereum chain, from October 27th to 31st, the amount of ETH burned exceeded the issuance for consecutive days, and its actual supply decreased by 8571.24 in 4 days, which represents its communication. The issuance of certificates temporarily changed from inflation to deflation.

The ETH that entered the “deflationary season” hit a record high of $4,460 during this period. And when the network on the chain is developing and prospering, the Layer 2 ecology is also developing rapidly this year. According to data from L2BEAT, as of October 31, the total amount of Ethereum Layer 2 locked up was 4.68 billion U.S. dollars, an increase of 532.43% from the 740 million U.S. dollars two months ago.

According to the latest CME futures weekly report released by the US Commodity Futures Commission (CFTC), between October 20 and 26, the largest ETH dealers’ long positions rose from 287 to 383, a record high. As the Ethereum ecosystem continued to make great strides forward, institutional investors expressed their higher expectations with practical actions.

The amount of ETH burned exceeds 700,000 pieces, which is higher than the issuance for 4 consecutive days

Since EIP-1559 took effect on August 5th, a certain amount of ETH will be destroyed for every transaction generated on the Ethereum chain. After nearly 3 months of accumulation, as of November 1, the amount of ETH burned has exceeded 700,000 pieces, reaching 712,400 pieces, valued at approximately US$3.06 billion.

The huge amount of burns benefited from the active application ecology on the Ethereum chain. According to data from ultrasound.money, up to now, the most ETH burned application is OpenSea, which burns over 91,800 ETH, the second is Ethereum on-chain transfer, which burns a total of 66,000 ETH, and the third is Uniswap V2. A total of 53,000 ETHs were destroyed. There are also Tether, Metamask, Axie Infinity and so on.

This list, ranked according to the number of burns, clearly reflects the hot zone of the Ethereum ecology in the past few months, including NFT, transactions, stable coins, and chain games.

According to the website ultrasound.money, during the current on-chain boom, about 5.63 ETH is destroyed every minute, worth about $24,200.

This “burning money” speed significantly reduces the inflation rate of ETH. According to the ETH economic model, its annual inflation rate is 4%. The current annual number of additional issuances is about 5.4 million. According to real-time data calculations, ETH can destroy 3 million per year. This number has exceeded half of the additional issuance. The annual inflation rate was reduced to 2.1%.

It should be noted that the above is a relatively macro data. With the accelerated destruction of ETH in recent days, ETH has entered a phased “deflationary season.”

According to data from Ouke Cloud Chain, on October 28, the amount of ETH burned reached 16,910.57, a record high in a single day; the next day, the amount of ETH burned was also considerable, reaching 16,362.65, the second highest in history.

Ethereum enters ``deflationary season'', futures bulls are optimistic about the market outlook

The amount of ETH burned has increased significantly recently

From October 27th to 31st, the amount of ETH burned exceeded the issuance for consecutive days, and the actual supply in 4 days decreased by 8,571.24 altogether, which means that its issuance of tokens temporarily changed from inflation to deflation.

Similar situations have appeared many times. On September 3, the amount of ETH burned exceeded the issuance for the first time, and from September 7 to 9, ETH also entered a state of deflation. It is not difficult to see that with the development of the ecology, phased deflation of Ethereum has become the norm.

L2 lock-up volume has increased greatly, and institutions increase long positions

ETH entered the “deflationary season”, which provided an upward boost to its market value growth. On October 30th, ETH rose to a maximum of 4460 US dollars in the secondary market, setting a record high. At present, ETH is still oscillating at a high level, and its quotation on November 1 is about 4,300 US dollars.

Some traders believe that as long as the Ethereum ecosystem continues to develop, its token destruction speed will increase day by day. The combination of two factors will give ETH a higher growth potential.

From the perspective of precipitation on the chain, ETH is still the king of the public chain. On November 1, the total lock-up value (TVL) of each DeFi protocol on the ETH chain was 136.94 billion U.S. dollars, which was at the normalized high point of “All Time High”. It occupies 86.67% of the total lock-up value of all mainstream public chains in the market.

Nevertheless, network congestion and high transaction fees are still the long-term problems of Ethereum. Before the arrival of the ETH 2.0 era, the progress of on-chain capacity expansion was an important criterion for evaluating its development.

Not long ago, at the 2021 Blockchain Global Summit, Ethereum founder Vitalik Buterin admitted that expansion is one of the biggest challenges facing the blockchain field. There are two ways to achieve expansion. One is to increase the block size and increase the gas. The upper limit, another way is to use Layer 2 technology. Vitalik believes that Layer 2 is the future of Ethereum’s expansion. Using Layer 2 to implement Ethereum’s expansion is the only safe way to ensure decentralization.

After preliminary exploration, the Ethereum L2 ecosystem has developed rapidly this year. According to data from L2BEAT, as of October 31, the total amount of Ethereum Layer 2 locked up was 4.68 billion U.S. dollars, an increase of 532.43% from the 740 million U.S. dollars two months ago.

Ethereum enters ``deflationary season'', futures bulls are optimistic about the market outlook

Ethereum Layer 2 total lock-up volume reaches 4.68 billion U.S. dollars

At present, the expansion plan with the highest lock-up amount is Arbitrum, with TVL of approximately US$2.8 billion, accounting for 59.82%; followed by dYdX , with TVL of US$1.01 billion, accounting for 21.66%; Optimism ranked third with TVL of US$453 million. Accounted for 9.68%, an increase of 65.91% on the 7th.

The characteristics of the Ethereum L2 network and applications are to greatly improve transaction efficiency and reduce transaction fees without sacrificing decentralization. According to actual measurement, the gas fee for each transaction in Arbitrum is about $5, and there is no need to burn the gas fee in the derivatives agreement dYdX transaction, and the smoothness of contract transactions is comparable to that of a centralized exchange.

The implementation of the Layer 2 expansion plan and the accelerated growth of TVL have brought new growth points to Ethereum. In addition, ETH2.0, which is widely concerned by the outside world, also has new development progress. On October 27, the Ethereum beacon chain activated the Altair hard fork upgrade, which is one step closer to the goal.

Ethereum’s first-level network and L2 go hand in hand, and with the advent of the “deflationary season”, the market is raising expectations for it.

Recently, the US Commodity Futures Commission (CFTC) announced the latest CME futures weekly report. The report shows that between October 20 and 26, the largest ETH dealers’ long positions rose from 287 to 383, a record high, while short positions fell from 58 to 31. The dealer account has carried out a net long position adjustment during this period, showing that institutional investors are optimistic about the future of Ethereum.

Previously, many people in the industry predicted that the market value of ETH will gradually surpass BTC , and the current market value of ETH in circulation is US$511.198 billion, which is still far behind the US$1.17 trillion market value of BTC. However, with the increase in ETH deflation and the development of Layer2, the “throne battle” in the crypto market will become more and more interesting.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/ethereum-enters-deflationary-season-futures-bulls-are-optimistic-about-the-market-outlook/
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