News - Is Ethereum no longer deflationary?

By Mike Hesp

Is Ethereum no longer deflationary?

After the EIP-1559 update, Ethereum (ETH) has deflationary supply dynamics. But this was not always the case.

One of the strongest stories around ETH is the idea of ''ultrasound money,'' or deflationary supply dynamics since the EIP-1559 update. The function is simple: the more activity on the mainchain, the more ETH is ''burned,'' i.e. withdrawn from circulation in the long run. This shrinks the overall supply.

With declining activity in September, some feared that Ethereum's deflationary supply dynamics were coming to an end. Since about mid-August, inflation has been positive, which can be attributed to the general decline in activity on the blockchain during the summer months.

More coins in circulation theoretically lead to higher supply, which puts downward pressure on the price.

ETH inflation rate over time.

Source: Glassnode.

However, fears of a prolonged inflationary phase for Ethereum proved unfounded. ETH is now deflationary again. The chart clearly shows that short-term fluctuations have no significant impact on the overall supply trend for ETH. The DeFi is therefore likely to remain a deflationary monetary system in the long run.

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