Crypto Giants Struggle with Broken Fee-Burning Mechanisms

Ethereum (ETH) and XRP share a critical problem that may impact their value. Both cryptocurrencies destroy a portion of every transaction fee incurred on their blockchains, but this mechanism isn't boosting returns for holders as expected.

XRP has destroyed just 14 million XRP through fees over the entire 13-year life of the XRP Ledger (XRPL), which is about 0.01% of the 100 billion XRP maximum supply. In contrast, Ethereum's supply has grown by more than 950,000 ETH since September 2022.

The Ethereum Improvement Proposal (EIP)-1559 upgrade in 2021 was designed to increase scarcity by burning a portion of every gas fee, but it hasn't had the desired effect. The average fees paid on Ethereum are down 97.5% over the last five years due to the Dencun upgrade, which rerouted traffic to Layer-2 (L2) networks.

The rate of tokens being removed from supply needs to be above average gas fees near 16 gwei per transaction to offset the 1,700 ETH issued daily to the network's stakers. With average gas fees currently at 0.14 gwei per transaction, Ethereum's supply will continue expanding for the foreseeable future.