Ethereum supply turns deflationary, but price continues to struggle

As global financial institutions struggle with record levels of inflation, Ethereum faces a reverse dilemma.

Since Saturday, the supply of ETH has fallen by more than 4,000 tokens, according to data from ultrasound.silver, but saw no corresponding price increase. The price of ETH, despite falling supply, fell about 3.6% in the same period, at $1,307 to the editor.

The turning point marks the first deflationary run – where more ETH is destroyed than created – since the Ethereum network historic movement to prove what is at stake in September.

All Ethereum transactions require so-called gas fees, which increase Ethereum’s security by preventing the network from being overloaded with malicious requests. The more traffic there is on the Ethereum network at any given time, the higher the gas charges will increase.

Gas fees are pocketed by the validators that process all ETH transactions. Since the start of a network upgrade called EP-1559 last augusthowever, a portion of each gas fee was also destroyed, to automate transaction pricing and limit ETH supply.

From Saturday, the cost and volume of gas fees began to burn more ETH than was created simultaneously via staking – the post-merger process by which ETH is now generated. Since then, the total amount of ETH in circulation has fallen by 4,001 ETH and continues, with the rate of burning continuing to exceed the rate of creation of ETH.

The average gas charges on the network have meanwhile doped 218% since Friday, at a current average of 35 gwei, and show no signs of letting up.

The source of the erratic rise in Ethereum traffic – and thus skyrocketing gas fees – that caused ETH to deflate appears to be a new token project called XEN Crypto. XEN Crypto transactions account for 40% of all gas used across the network in the past 24 hours, according to etherscan.io.

XEN, a cryptocurrency created by the first Google engineer and crypto influencer Jack Levin, defines itself as a “universal cryptocurrency” with no “intrinsic value” that will accumulate value “as more people join and participate in the minting”.

The token, which debuted this weekend, started out with no supply, but was free to mint (users only had to pay ETH gas fees to generate XEN tokens).

On Sunday morning, the price of the token fell a fraction of a cent in value to $1.04. Within five minutes, XEN fell back to just under a cent, before falling back to a fraction of a cent near zero, where the token’s value has remained ever since.

Over the past 24 hours, XEN minters have paid nearly $2 million in gas costs to generate the novel and now the token with no functional value.

On Twitter, observers quickly began calling the token launch a Ponzi scheme.

XEN’s litepaper specifically criticizes tokens that encourage “pumping and dumping” and alleges that XEN’s tokenomics will solve this problem. Because no pre-existing XEN offerings were initially distributed to the token’s creators, according to the litepaper, it operates on a “fair system.”

Levin, the creator of the token, did not immediately respond to Decryptrequest for comment.

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About Catherine Sturm

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