Definition ∞ Ethereum supply reduction refers to a decrease in the total quantity of Ethereum (ETH) tokens available in the market. This phenomenon is primarily driven by protocol mechanisms, such as the burning of transaction fees introduced by EIP-1559. A reduced supply can exert deflationary pressure on the asset, influencing its scarcity and perceived value over time.
Context ∞ Following major network upgrades like the Merge, Ethereum’s economic model has incorporated mechanisms that actively reduce the circulating supply of ETH. This shift has become a significant talking point in crypto news, as it positions ETH as a potentially deflationary asset. Understanding this dynamic is crucial for evaluating Ethereum’s long-term value proposition and market behavior.
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