The rate of Ether (ETH) deflation has been accelerating in recent weeks, and recently spiked to its highest since last May at 5.679%. Ether is the cryptocurrency that powers the smart-contract-enabled Ethereum blockchain, and is the world’s second most valuable cryptocurrency by market capitalization. Ethereum is also the dominant blockchain in Decentralized Finance.
On Saturday the 13th of March, the annualized burn rate of ETH due to Ethereum Improvement Proposal 1559 exceeded the Ether issuance rate of 0.578% by 5.101%. This record-breaking figure has since declined to around 1.75% as of Wednesday the 15th of March.

Cryptocurrency markets experienced extreme volatility last weekend and at the beginning of this week due to the series of major regional US bank collapses and the policymaker response. Ether was last changing hands on exchanges in the upper-$1,600s, having hit multi-month highs above $1,700 earlier this week.

The spike in the ETH deflation rate was accompanied by a surge in the Ethereum gas price, a fee charged to users of the network, to its highest level since last May. An increase in demand for the Ethereum network may result in further network congestion, which will boost Ethereum gas fees and thus further accelerate the deflation rate of the cryptocurrency. A higher deflation rate is likely to be a long-term positive for the ETH price.
Explainer – What is Driving the Increased ETH Deflation?
To answer the question of what is driving the rise in the ETH deflation rate, it is necessary to understand the Ethereum network fee structure. Network fees are divided into two parts. The first is a base fee that all users must pay to have their transaction processed on the blockchain.
There is then an optional tip that users can pay to have their transaction processed more quickly. Ethereum’s base fee is calculated automatically, and rises when there is heavy network traffic. With the implementation of Ethereum Improvement Proposal (EIP) 1559 in the London hardfork in August 2021, all of the base fees paid by users are then burned, removing the tokens from circulation completely.
As a result, when the base gas fee increases, the rate of Ether burning also rises. When this burn rate is greater than the ETH Issuance Rate, which is around 0.55%, the ETH supply decreases. ETH is issued to the nodes and stakers that secure the Ethereum network.