In recent months, Ethereum has witnessed a significant decline in user activity on its blockchain. This slowdown has caused the token burn rate – a key mechanism for controlling ETH supply – to drop considerably.
As the amount of burned tokens decreases, the circulating supply of ETH begins to increase, thereby creating inflationary pressure on the asset. Consequently, ETH has continuously struggled to maintain a stable price above the $2,000 mark in recent times.
Low burn rates mean more circulating coins
According to data from Ultrasoundmoney, over the past month, the circulating supply of Ethereum has increased by 72,927 ETH – equivalent to about $134 million at the current exchange rate.
As of the time of writing, the total supply of ETH reached 120,730,199 ETH – significantly higher than the period before Ethereum transitioned to the proof-of-stake (PoS) consensus mechanism from the The Merge upgrade.
Circulating supply of Ethereum | Source: Ultrasound Money
The main reason for this increase is the noticeable decline in activity on the Ethereum network, leading to a sharp decrease in the amount of ETH being burned. The burn mechanism was introduced through EIP-1559, which aims to eliminate part of the transaction fees to control the supply of ETH. However, the effectiveness of this mechanism directly depends on the frequency of network usage: the fewer transactions, the less ETH is burned, leading to a tendency for supply to expand again.
Statistics from Etherscan show that the amount of ETH burned daily has decreased by up to 95% since the beginning of 2025. Notably, on April 20, the Ethereum network recorded the lowest ETH burned in a day since EIP-1559 was implemented.
Daily burned Ether amount | Source: Etherscan
Why are users leaving the Ethereum blockchain?
Many users and developers are migrating from Ethereum to Layer-2 (L2) solutions like Optimism and Arbitrum. These networks offer significantly lower transaction fees and faster processing speeds, resulting in a decrease in user activity on Ethereum's mainnet.
For example, as of April 30, the average transaction fee on the Optimism mainnet was only $0.024. Meanwhile, executing a direct transaction on Ethereum on the same day cost an average of $0.18 – over seven times higher.
Average transaction fees of Optimism | Source: Dune Analytics
Additionally, the recent wave of meme coins has also helped 'Ethereum killers' like Solana attract significant attention in the past few months, pulling users away from Ethereum's Layer-1 platform.
These trends have contributed to a decrease in the number of transactions on Ethereum, thereby causing the token burn rate on the network to decline sharply.
How are the fundamental factors of Ethereum currently?
The increase in ETH supply while demand decreases is raising many questions about the inherent strength of Ethereum – the leading smart contract platform in the market.
When asked about Ethereum's current position compared to other Layer-1 (L1) networks in the context of the overall sluggish market, Mr. Vincent Liu – Investment Director at Kronos Research – shared his perspective:
'The fundamental factors of Ethereum still show superiority over most other Layer-1s, especially considering the total value locked (TVL) of $368.921 billion – helping Ethereum maintain its top position,' Mr. Liu commented.
Nevertheless, he also pointed out that Ethereum currently ranks fifth in transaction fees over 24 hours, behind Tron, Solana, HyperLiquid, Bitcoin, and BNB Chain. However, he still emphasized that this network 'maintains a significant level of usage and demand.'
In agreement, Mr. Temujin Louie – CEO of Wanchain – believes Ethereum continues to assert its position through solid foundational strength. In a recent interview, Mr. Louie remarked:
'Compared to many other Layer-1s that have a high inflation design, Ethereum – with its post-merge architecture – possesses deflationary potential. This is a structural advantage that few competitors have. However, the impact of EIP-1559 still largely depends on on-chain activity.'
He also acknowledged that the strong development of Layer-2 solutions as well as the emergence of 'Ethereum killers' like Solana may have somewhat reduced the pressure to use Ethereum directly. Nevertheless, according to Mr. Louie, Ethereum still maintains its position thanks to its high level of decentralization and an operational performance that few competitors can match – factors that help this platform continue to play a pivotal role in the market.
And what about the price of ETH?
Although the fundamental factors of Ethereum remain strong, the noticeable decline in network activity is creating significant obstacles for ETH in the short to medium term. Mr. Liu noted that the weakness in network activity often reflects a declining level of interest and demand for ETH.
At the same time, the increasing supply of ETH on the network is weakening the deflationary mechanism designed to support the asset's value. 'This could put ETH under downward price pressure,' Mr. Liu warned, 'especially as investors begin to shift towards alternative Layer-1 platforms with higher scalability and lower transaction costs.'
Mr. Kadan Stadelmann, CTO of Komodo Platform, also emphasized the impact of macroeconomic factors. He stated that if Ethereum continues to experience a prolonged downturn in activity, the price of ETH could be negatively affected, especially given that the US Federal Reserve remains steadfast in its quantitative tightening policy. 'In the short term, this could pull the price of ETH down to around $1,500,' he warned. 'If this trend is not reversed, Ethereum may enter a prolonged accumulation phase, or even a real downturn cycle.'
ETH approaches the $2k mark as the RSI index continues to reinforce the upward momentum
ETH is currently trading around $1,834, down slightly by 1% in the past 24 hours. However, behind this adjustment is a positive signal from the spot market, where buying pressure is still increasing – clearly evidenced by the rising relative strength index (RSI).
ETH/USDT daily chart | Source: TradingView
At the time of writing, ETH's RSI index reached 57.68 – a level indicating that upward momentum is being reinforced. This implies that ETH still has room for growth if demand continues to be sustained in the upcoming sessions.
In an optimistic scenario, the largest altcoin in the market could soon break through the resistance level of $2,027. Conversely, if buying pressure weakens, the nearest support area around $1,733 may be tested.
Disclaimer: This article is for informational purposes only and is not investment advice. Investors should conduct their own research before making decisions. We are not responsible for your investment decisions.