Ether (ETH) has turned deflationary for the first time since the token's parent blockchain Ethereum changed how it processes transactions nearly two months ago.
Data from ultrasound.money shows the second-largest cryptocurrency's net issuance, or the annualized inflation rate, has dropped to 0.029%, indicating that the leading smart contract blockchain is now burning more ether than what's being minted.
The negative inflation rate means ether's net supply has declined by 5,598 since Ethereum transitioned to a proof-of-stake (PoS) consensus mechanism of verifying transactions from a proof-of-work (PoW) mechanism on Sept. 15. Ether's supply would have increased by nearly 670,000 had Ethereum continued to use the PoW mechanism.
The upgrade, dubbed Merge, put ether on the path to becoming a deflationary asset by replacing miners with validators as entities responsible for running the blockchain and causing a drastic reduction in the newly minted ETH. Ether's annualized inflation rate crashed from over 3.5% to nearly zero following the Merge.
The deflationary milestone, however, remained elusive for nearly two months before finally being reached, with the recent increase in the Ethereum network activity prompting an uptick in the amount of ether burned. That's a sign that ether's prospects as a deflationary asset heavily depend on the degree of network usage.
On Wednesday, more than 5,000 ETH was burned, the highest single-day tally since June, according to Etherscan. More than 13,000 ETH have been burned in the past three days alone. The Ethereum Improvement Proposal (EIP)-1559, implemented in August last year, introduced a mechanism to burn a portion of fees paid by users. The EIP is essentially tied the amount of ether burned with the network usage.
The amount of ether burned rose to a five-month high on Wednesday, indicating increased network usage. (Etherscan)
The latest increase in network usage could be attributed to market volatility triggered by the collapse of the cryptocurrency exchange FTX. Millions of dollars worth of crypto funds have been moved on-chain ever since FTX's liquidity woes became public. On Thursday, FTX's select customers were allowed to withdraw funds through Ethereum.
The positive change in ether's tokenomics could help the cryptocurrency outperform bitcoin and the wider market once the FTX-induced panic subsides.
At press time, ether changed hands at $1,270, representing a 1.7% decline on the day, according to CoinDesk data.
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.
Recommended Content
Editors’ Picks
Bitcoin likely to remain in red through the next quarter if history is any indication

Bitcoin (BTC) price produced a monthly close at $27,210, noting a -6.92% return for May. The last-minute slide in BTC put an end to the four-month bullish streak that kickstarted the 2023 rally.
Ethereum vs. SEC: Implications of Wahis’ insider trading settlement on ETH

Ethereum (ETH) is the subject of a new controversy, with the second-largest crypto finding itself in the rut after the United States Securities and Exchange Commission (SEC) settled its insider trading case against the Wahi brothers.
Justin Sun’s TRON hits all-time high of 10.9M daily transactions, braving crypto winter

Justin Sun, the founder of TRON – one of the largest decentralized blockchain DAO ecosystems in crypto – shared a new milestone for the token on Thursday. TRON processed 10.9 million in daily transactions, hitting a record high.
Ethereum fees decline by 70% from 2023 highs as top DeFi protocols lose users

Ethereum is currently facing trouble in the spot market due to the broader market bearishness as well as investors' skepticism. But while the spot market only recently took a turn for the worse, the DeFi space has been only negative for a long time.
Bitcoin: BTC delays inevitable crash to $25,000

Bitcoin price is delaying a crash that has been brewing for roughly two weeks. A failure to push higher could result in a steep correction next week. The troubling macroeconomic conditions could be key in catalyzing and trigger a nosedive for BTC holders.