- The number of Ethereum tokens in circulation has dropped by more than 4,000 since Saturday.
- This is the first time that more ETH is destroyed than is made on the network.
- 40% of all gas used in the last 24 hours was for XEN transactions.
Ethereum is confronted with an inverted conundrum as global banking institutions struggle with record levels of inflation.
According to data from ultrasound money, the number of ETH tokens has dropped by more than 4,000 since Saturday, but the price hasn’t gone up. Even though the supply of ETH has gone down, the price has gone down by 3.6% in the same time period, to $1,307 as of this writing.
Since the Ethereum network’s big move to “prove of stake” in September, this is the first time that more ETH is destroyed than is made. This is called a “deflationary run.”
All transactions on ETH require what are called “gas fees.” These fees make Ethereum more secure by keeping the network from getting too busy with malicious requests. The gas fees will go up the more people use the ETH network at a given time.
Gas fees are kept by the people who process all ETH transactions, called “validators.” Since the release of EP-1559, a network upgrade, in August of last year, a portion of every gas fee has also been destroyed. This is done to automate the prices of transactions and limit the amount of ETH that can be made.
Starting on Saturday, the cost and amount of gas fees started using up more ETH than was being made through staking, which is how ETH is now made after the merge. Since then, the total amount of ETH in circulation has gone down by 4,001 ETH and counting, and the rate of ETH being burned is still higher than the rate of new ETH being made.
Since Friday, the average price of gas on the network has gone up by 218%, to 35 gwei, and it doesn’t look like it will stop going up any time soon.
It looks like a new token project called XEN Crypto caused an irregular rise in Ethereum traffic and a rise in gas fees, which caused ETH to lose value. Data from etherscan.io shows that 40% of all gas used on the network in the last 24 hours was for XEN transactions.
XEN is a cryptocurrency that was made by early Google engineer and crypto influencer Jack Levin. It calls itself a “universal cryptocurrency” with “no intrinsic value” that will gain value “as more and more people join and participate in minting.”
This weekend, the token came out with no supply, but it was free to make (users only had to pay ETH gas fees to generate XEN tokens).
On Sunday morning, the token went from being worth less than a penny to being worth $1.04. Within five minutes, the price of XEN fell back to a little less than a cent, then fell again to a fraction of a cent close to zero, where it has stayed since.
In the last 24 hours, people who mined XEN paid almost $2 million in gas fees to make the new token that is now worthless.
People quickly began calling the token launch a Ponzi scheme on Twitter.
In the last few days, XEN has mostly been responsible for 30% of the net ETH that was issued going away.
Lessons:
There’s no more ETH because of a few clever ponzi schemes.
If you burn ETH, people are much less likely to criticise you. pic.twitter.com/DrxOg0bTwS
XEN is mostly interesting to me because
It’s a ponzi scheme that only works if people believe in whatever it is and keep buying tokens.
It’s making ETH lose value.
The people I would have expected to be behind this don’t seem to be.
