EIP-1559 burned $18 billion worth of Ethereum, but why is its supply still increasing?

A paradox that changes the way we think about limiting cryptocurrency supply. For three years, Ethereum has been destroying hundreds of thousands of tokens through EIP-1559, yet the amount of ETH in circulation continues to increase. How is this possible? The answer lies in the fundamental architectural changes that have taken place in the network over recent years.

How EIP-1559 Changes Ethereum’s Dynamics

The introduction of EIP-1559 in September 2021, via the London hard fork, was a breakthrough in the approach to cryptocurrency economics. This mechanism allows a portion of transaction fees to be burned, removing them from circulation. Since then, the network has eliminated over 6.1 million ETH — a figure worth approximately $2.02K each, totaling about $18 billion in destroyed value at current prices.

This phenomenon was especially intense during peak activity in 2021-2022, when platforms like OpenSea and Uniswap generated huge transaction volumes. OpenSea alone contributed to burning hundreds of thousands of tokens. However, as network activity declined in recent months, the burning rate has noticeably slowed. Data shows a direct correlation between network usage and the number of ETH burned — fewer transactions mean fewer tokens burned.

Proof-of-Stake: Why Emission Outpaces Burning

Here lies the core of the puzzle: despite the massive amount of tokens burned, the total supply of Ethereum is steadily increasing. The reason is the network’s transition to Proof-of-Stake in 2022. Unlike the previous Proof-of-Work system, PoS issues new ETH as rewards to validators securing the network.

Since the London hard fork was implemented, about 4 million new ETH have been added to circulation. Although Proof-of-Stake is much less inflationary than the previous system, it still generates a positive net emission. During periods of low network activity, the burned fees are insufficient to offset the newly minted tokens. The result? Ethereum remains inflationary, with an estimated annual inflation rate of around 0.8%.

Statistics on the current state of the network show that with 120.69 million ETH in circulation and a total supply of 120.69 million tokens, this dynamic will significantly impact long-term valuation. The price increase to current levels (+8.29% year-over-year) indicates that the market is adapting to this economic structure.

Fusaka and the Outlook for Deflationary Ethereum

The latest update, Fusaka, could accelerate this process by introducing significant improvements in network performance and reducing transaction costs. Facilitating the deployment of Layer 2 solutions and rollups, this update could revitalize the ecosystem and boost user activity.

If this update indeed attracts more projects and users, the burning rate of ETH could surpass net issuance, making Ethereum deflationary. Such a scenario would be groundbreaking for the token’s economics, but the effects will only be visible in the medium term.

Current market forecasts are divided. Some analysts expect the price to stabilize around $3,000 due to increasing adoption. Others warn of a contraction scenario if Ethereum fails to stand out among competitors like Solana, which are actively building their own ecosystems.

What’s Really Behind All This?

The situation with EIP-1559 illustrates a fundamental problem: the burning mechanism works, but its effect is neutralized by the net issuance from the Proof-of-Stake system. This is not a project failure — it’s the mathematics of cryptocurrency economics. The question, which the future development of the ecosystem will answer, is: can increased activity and adoption turn the deflationary effects of EIP-1559 into a reality, transforming Ethereum into a truly scarce and more valuable asset?