On 04/02/2025, Ethereum (ETH) ended a challenging Q1 with the burn rate dropping to its lowest level since August 2021, while ETH price plummeted 45%, losing $170 billion in market cap. With the shift to Layer-2 and the potential for asset tokenization, can Ethereum regain its momentum, or will it continue to sink in crisis?
ETH Burn Rate Decreases: Worst Quarter Since 2022
Ethereum, the leading altcoin, has faced a challenging Q1/2025. According to Wintermute, the ETH burn rate – a measure of the amount $ETH removed from circulation – has dropped to its lowest level since August 2021, with only 53 ETH burned per day last week. This has raised concerns in the investment community, negatively impacting ETH's market performance.
In Q1, ETH price dropped 45%, from $3,400 to $1,830 (according to CoinGecko), evaporating $170 billion in market cap – the third worst quarter since 2016, only after Q4/2022 (FTX collapse) and Q1/2018 (ICO bubble burst). Total supply of ETH has also increased by 3% since the EIP-1559 upgrade (08/2021), according to Ultrasound Money, showing that ETH is no longer as deflationary as before.
Causes: Layer-2 and EIP-4844 Reduce Transaction Fees
The decrease in burn rate stems from the shift to Layer-2 solutions (like Arbitrum, Optimism) and the EIP-4844 upgrade (03/2024). EIP-1559, implemented in 2021, introduced a transaction fee burn mechanism to reduce ETH supply instead of paying miners. After transitioning to Proof-of-Stake (The Merge, 09/2022), the amount of newly issued ETH decreased significantly, combined with fee burning, making ETH deflationary.
However, EIP-4844 has significantly reduced the amount of ETH burned from Layer-2 networks, where most user activity has shifted. Transaction fees on the Ethereum mainnet have decreased to a 5-year low ($0.40), compared to the 'gas wars' of 2021 when fees could reach $4,000 per transaction (due to congestion from NFTs like Bored Ape Yacht Club). With low fees, the amount of ETH burned has decreased, increasing supply and putting pressure on prices.
Tokenization Potential: Hope for ETH Revival?
Despite poor performance, some experts are optimistic that real-world asset (RWA) tokenization could help ETH return to a deflationary state. Tokenization is the process of bringing real assets (stocks, bonds) onto the blockchain as digital tokens. According to RWA.xyz, $5 billion in real assets have been tokenized on #Ethereum (accounting for 54% of the market, excluding stablecoins). Boston Consulting Group predicts that this figure could reach $16 trillion by 2030.
Larry Fink, CEO of BlackRock, emphasized in a letter to shareholders: 'One day, tokenization funds will be as familiar as ETFs. Every stock, bond, fund – every asset – can be tokenized.' BlackRock has tokenized the BUIDL fund on Ethereum, with $1.2 billion in assets (according to DefiLlama). If large institutions like BlackRock bring trillions of dollars in assets to Ethereum, trading activity will increase, driving up gas fees and increasing the amount of ETH burned.
However, Juan Leon (Bitwise) warns with #Decrypt : 'We have not yet seen the economic benefits of tokenization. This process will take longer than expected because large asset managers are not moving quickly.' At the current pace, tokenization may not be enough to save ETH in the short term.
Impact on the Crypto Market
Ethereum (~$1,830): Down 45% in Q1/2025, market cap remains at $220 billion, ETH/BTC exchange rate at its lowest since 2020 (according to Coin68).
Crypto Market: Market capitalization down 11.65% ($2.88 trillion), Bitcoin down 12%, pessimistic sentiment (Trump tariffs 04/02).
Investors: Concerns about ETH's ability to accumulate value, but tokenization could be the 'light at the end of the tunnel' (BlackRock holds $50.2 billion in Bitcoin).
Conclusion: Can ETH Be Revived?
Q1/2025 has been a 'nightmare' for Ethereum: lowest burn rate since 2021, price down 45%, losing $170 billion in market cap. The shift to Layer-2 and EIP-4844 reduces fees and increases supply, causing ETH to lose its deflationary nature. However, tokenization of real assets – with a potential $16 trillion by 2030 – could help ETH regain its momentum if large institutions participate. Can Ethereum overcome the crisis to return to its golden age, or will it continue to sink into darkness? As the market fluctuates, the answer remains a big question mark.
Risk Warning: Crypto investment carries high risks due to price volatility and technological instability. Please consider carefully before participating.