When Ethereum launched in 2015, its supply model was fairly straightforward: new ETH would be minted with every block, rewarding miners for securing the network. However, Ethereum’s economic structure has evolved dramatically over the years, especially with the introduction of upgrades like EIP-1559 and the shift to proof-of-stake. Today, many are asking an important question: Is ETH becoming deflationary? To answer that, we need to dig into how Ethereum supply and the ETH burn rate now work.
Traditionally, cryptocurrencies like Bitcoin and Ethereum followed an inflationary model, where the total supply increased over time. For Bitcoin, that inflation is strictly controlled and capped at 21 million coins. Ethereum, however, was designed without a hard cap, focusing instead on flexibility and security incentives for validators. This led to concerns over time that ETH’s unlimited supply could affect its long-term value proposition compared to Bitcoin’s scarcity narrative.
Things started to shift in August 2021 with the introduction of EIP-1559 through the London upgrade. This proposal radically changed how Ethereum handles transaction fees. Instead of all fees going to miners (now validators after the Merge), a portion of each transaction fee—called the base fee—is now burned, meaning permanently removed from circulation. This mechanism introduced a constant downward pressure on Ethereum’s supply, especially during periods of high network activity.
The impact of the ETH burn rate quickly became clear. During peak times, such as major NFT drops or DeFi booms, the amount of ETH burned outpaces the amount newly issued to validators. When more ETH is destroyed than created, the network experiences what is known as deflationary pressure. Since the transition to proof-of-stake in September 2022, Ethereum’s issuance rate has dropped even further, making it much easier for burning to outpace new supply under the right conditions.
As of 2025, Ethereum’s supply dynamics show periods where ETH is indeed deflationary. Over the past year, millions of ETH have been burned, and the total supply has either stabilized or declined slightly, depending on network usage. This phenomenon is often called “ultrasound money” within the Ethereum community, highlighting the idea that ETH could potentially become even more scarce than Bitcoin over time.
Why does this matter for investors and users? A deflationary ETH suggests that, all else being equal, the value of each remaining ETH could increase as supply shrinks while demand continues to grow. It also enhances Ethereum’s appeal as a store of value, not just a utility token. If adoption of decentralized applications, NFTs, Layer 2 solutions, and DeFi platforms continues to rise, the network activity could sustain or even accelerate the burn rate, further supporting this scarcity narrative.
However, it’s important to note that Ethereum’s deflationary status is not constant. During periods of lower network activity, the burn rate may fall below new ETH issuance, temporarily tipping the balance back toward slight inflation. Ethereum’s model is dynamic, designed to adjust naturally with usage, rather than enforcing fixed supply schedules. This flexibility allows Ethereum to remain both secure and adaptable, which are crucial for a network that aims to serve as a global settlement layer.
Looking ahead, upcoming upgrades like proto-danksharding and other scaling solutions could increase transaction throughput, potentially affecting how much ETH is burned relative to fees collected. If network activity spreads out across more transactions at lower individual costs, the burn rate might decrease slightly, but if overall volume increases significantly, the net deflationary pressure could intensify.
In conclusion, Ethereum’s economic model has shifted from predictable inflation toward a new, dynamic balance between issuance and burn. Deflationary ETH is not just a theoretical concept anymore—it’s already happening during active periods. While nothing in crypto is guaranteed, Ethereum’s evolving supply mechanics are making a strong case for its long-term resilience, value growth, and unique positioning among digital assets.
