Key Takeaways:
Ethereum's base fee fell to 1 Gwei for the first time, slashing the amount of ETH burned daily and putting the network's supply trajectory under scrutiny.
Ethereum's base fee dropped to 1 Gwei on July 8, reducing daily ETH burned to near-zero levels and challenging the ultra-sound money thesis that has underpinned bullish price expectations for the second-largest cryptocurrency. ETH traded at $1,743 as of 12:30 UTC, down 32% from a year ago, according to CoinGecko.
Data from ultrasound.money shows the Ethereum network burned fewer than 100 ETH in the past 24 hours at 1 Gwei base fees, compared with a daily average of roughly 2,000 ETH when fees were above 10 Gwei. The last time base fees approached this level was during the depths of the 2022 crypto winter, when network activity slumped alongside token prices.
The drop in base fees reflects the migration of user activity to Layer-2 networks such as Arbitrum, Base and Optimism, where transaction costs are a fraction of Ethereum mainnet. Total value locked across Ethereum L2s has climbed to $48 billion, according to DefiLlama, even as L1 fee revenue has collapsed. Ethereum's market capitalization stands at $210.4 billion, second only to bitcoin's among cryptocurrencies.
The shift has direct implications for ETH supply. Since the Merge in September 2022, EIP-1559 has burned more than 4.3 million ETH. At current burn rates, Ethereum's net supply could turn inflationary, adding roughly 0.5% annually — a structural headwind for a token whose bull case has relied on growing scarcity. ETH's 52-week high of $4,954, set in August 2025, is roughly 65% above current levels.
Cheap Gas, Expensive Trade-Off
Low fees are a double-edged sword for Ethereum. For users, the 1 Gwei environment makes decentralized finance applications on Ethereum accessible at negligible cost — a stark contrast to the 2021 bull market when a simple swap could cost $50 or more in gas. For ETH holders, however, the reduced burn means the network is no longer absorbing supply at the rate that bulls had priced in.
The Ethereum supply has grown by roughly 60,000 ETH since the start of 2026, according to CryptoQuant, reversing the deflationary trend that persisted through much of 2024 and 2025. Bitcoin, by contrast, maintains its fixed supply cap of 21 million coins, with its issuance rate halving every four years.
Layer-2 Adoption Accelerates
The fee compression is not a sign of waning interest in Ethereum but rather a successful migration to its scaling ecosystem. Monthly active addresses on Arbitrum and Base have each surpassed 5 million, according to Dune Analytics, while Ethereum mainnet active addresses have held steady at roughly 400,000 per day. The trade-off is that L2s generate minimal fee revenue for the L1, as data availability costs on Ethereum remain low.
Solana, Ethereum's primary competitor in the smart contract space, has benefited from the shift in attention. SOL traded near $78 on July 8, up roughly 16% over the past week, according to CoinGecko, as traders rotated into alternative L1s where fee revenue remains tied directly to on-chain activity.
The next data point for Ethereum bears and bulls alike will be the network's issuance report at the end of July. If the current fee environment persists, ETH's annualized inflation rate could register above zero for the first full month since the Merge.
This article is for informational purposes only and does not constitute investment advice.
