Ether has become deflationary again amid this year’s market rebound.
Data from ultrasound.money shows ether’s net issuance, or the annualized inflation rate, has dropped to -0.07%, meaning the volume of ether being burnt is outpacing the amount that is being minted.
Marcus Sotiriou, market analyst at digital asset broker GlobalBlock, attributed the recent surge in ether burnt to a spike in non-fungible token (NFT) sales driven by positive sentiment about the broader crypto market.
More than 14,600 ethers (ETH), worth around $23 million, have been burnt over the past seven days, according to ultrasound.money. Some 3,400 of these ETH were burned during NFT trades. NTF marketplace OpenSea is the top seven-day and 30-day Ethereum gas-guzzler among platforms, ultrasound.money found.
According to data from cryptoslam, NFT sales volume jumped more than 5% to $244 million over the past week, and 81% of sales volume, or approximately $198 million, is based on the Ethereum network.
“More NFT sales on Ethereum means more transactions are occurring, resulting in more ETH being burnt,” Sotiriou told CoinDesk.
Market participants widely expected that last fall’s Ethereum Merge, which shifted the platform’s protocol from a proof-of-work (PoW) to more energy-efficient proof-of-stake (PoS) protocol, would turn ether deflationary.
Ether’s inflation rate also depends on a separate mechanism known as Ethereum Improvement Proposal (EIP)-1559, where fees paid for transactions on the network are “burned,” or eliminated from circulation. The EIP-1559 is tied to the amount of ether burned with network usage: The more transactions on the blockchain, the more ETH is burnt.
ETH became deflationary in November when the amount of ether being burned rose amid market volatility triggered by crypto exchange FTX’s implosion. But ETH subsequently turned inflationary because of slow network usage as the crypto market remained in the doldrums.
As the market rallied more recently, usage of the Ethereum platform spiked and ETH turned deflationary again. Daily burn rates soared from a range of 1,000 to 2,000 ETH over the past six months to a high of over 2,700 ETH on Jan. 18, according to data from Etherscan.
ETH was recently trading at $1,618 Tuesday, up roughly 3% in the past seven days.