[Myung Jung-sun's Analysis] Ethereum (ETH) Burn Rate Soars Post-Pectra: What's Behind It?

# Ethereum Network Faces Unprecedented Supply Shock Amid Soaring ETH Burn Rates In May, the Ethereum (ETH) network witnessed a remarkable event: daily ETH burn rates exceeded 2,500 ETH, with over 110,000 ETH burned in just one day. This significant shift, unlike sporadic events such as NFT minting or meme coin trends, followed a key network upgrade, drawing substantial market interest. # Pectra Upgrade Triggers Market Disruption and Supply Shock Identified as the driving force behind this upheaval, the Pectra upgrade marks the final major enhancement phase before Danksharding. Although it emphasizes user experience and execution efficiency rather than structural overhauls, the upgrade unexpectedly caused a surge in network activity, leading to a spike in burned transaction fees. After the Pectra upgrade, market observers noticed unusual activity on the Ethereum network. On May 13, cryptocurrency trader Merlijn the Trader noted on X (formerly Twitter), "Pectra upgrade flipped the switch. This isn't just a bullish phase—it's a supply shock." According to Ethereum's block explorer, around 118,000 ETH was burned within 24 hours—a record-breaking amount. Merlijn The Trader’s tweet highlighted the urgency: > $ETH SUPPLY IS SHRINKING FAST > Over 118,000 ETH burned in 24h. > Pectra flipped the switch. > This isn’t just bullish. > It’s a supply shock. Before the Pectra upgrade, daily ETH burn rates rarely exceeded 1,000 ETH. While some attribute this spike to temporary factors, analysts argue it indicates structural changes. Sustained increases in network usage and post-upgrade transaction volumes suggest this trend could significantly impact Ethereum's supply structure. # "Same Roads, But with Double the Traffic" Ethereum’s fee-burning mechanism, introduced with the 2021 London upgrade via EIP-1559, remains intact post-Pectra. Under this system, increased network activity and transaction volume lead to higher ETH burn rates. What changed? Industry insiders point to a shift in Ethereum's utilization. As transaction efficiency and user accessibility improved post-Pectra, network activity surged. "Structurally, nothing changed; it’s how it’s being used that’s evolved," explained one analyst, emphasizing Ethereum’s new role as a high-utility transactional chain. # EIP-7702: Revolutionizing Transactions with Smart Contracts A standout feature of Pectra is EIP-7702, allowing traditional Externally Owned Accounts (EOAs) to temporarily act as smart contracts. Users can execute complex operations—like "ETH transfer → NFT minting → balance swapping"—in a single step. This capability merges simple accounts and smart contracts, increasing both transaction frequency per user and gas consumption. Within a week of Pectra’s deployment, EIP-7702 saw over 11,000 authorizations, according to The Block. This change has made Ethereum more accessible, even to users with limited technical expertise. Co-founder Vitalik Buterin praised EIP-7702 as a "pragmatic bridge toward Account Abstraction." # Blob Bandwidth Expansion Boosts L2 Transactions Another Pectra enhancement includes a doubling in blob bandwidth, based on EIP-4844, for data storage by Layer 2 solutions like Arbitrum and Optimism. Blobs reduce storage costs significantly and, while not directly burned, associated transactions incur fees that feed into EIP-1559 burning mechanisms. Currently, blob-related transactions account for over 40% of Ethereum’s activity. This increased Layer 2 settlement activity accelerates ETH burn rates, reinforcing Ethereum’s deflationary mechanisms. # EIP-1153: Lowering Gas Fees, Boosting dApp Usage Pectra also introduces EIP-1153, providing transient storage capabilities for smart contracts to temporarily store and delete data, reducing computational gas fees. This fuels a resurgence in decentralized app (dApp) deployment and usage, making Ethereum an enterprise-friendly, low-cost chain. # Market Implications: Ethereum’s Deflationary Comeback Pectra’s impact goes beyond short-term price gains, reinstating Ethereum's deflationary asset narrative and highlighting long-term fundamental improvements. Recent usage increases stem from structural changes to Ethereum’s functionality. The next upgrade, Fusaka, may further this evolution by introducing multi-blob handling and Data Availability Sampling (DAS). Analysts predict Fusaka will significantly boost Layer 2 transactions and amplify ETH burn rates. # Technical Patterns and Veteran Traders Signal Optimism Enhanced fundamentals are bolstering long-term bullish sentiments. Renowned trader Peter Brandt, who once criticized Ethereum, recently noted ETH’s breach of a multi-year descending triangle pattern. His remarks, along with deflationary supply mechanisms and structural improvements, are fueling market optimism. # “Whale Activity” Remains a Key Factor Not all signals are bullish. Some analysts warn of potential selling pressure from Ethereum ICO-era whales. Recently, Lookonchain identified an old wallet from Ethereum’s 2015 Genesis period selling over 7,000 ETH ($10 million) on Kraken. Although likely for profit-taking, such transactions could temporarily affect market sentiment. # A Transformative Era for Ethereum The Pectra upgrade marks a pivotal point in Ethereum’s evolution, emphasizing usability, network efficiency, and supply dynamics beyond price volatility. With the market anticipating Fusaka as the next breakthrough phase, analysts believe ETH’s deflationary narrative could foster a new paradigm for the blockchain’s role in decentralized finance and beyond.