Ethereum destroys part of every transaction fee instead of paying it to whoever produces the block. That single rule turns network activity into a variable that moves total supply in either direction.
What the base fee is and where it goes
Each block sets a base fee per unit of computation, adjusted automatically according to how full the previous block was. Every transaction pays at least that rate.
The base fee is burned, meaning the ether is removed from existence rather than transferred. No account receives it and no address holds it afterward.
Anything above the base fee is a tip, and the tip does go to the block proposer. The two components are separated precisely so that only one of them can be captured.
Why the fee is destroyed rather than paid
If block producers received the base fee, they would have an incentive to manipulate how full blocks appear in order to push the rate upward.
Burning removes that incentive, because inflating the base fee no longer enriches the party that controls block contents. The producer's income comes only from tips and rewards.
It also makes fee estimation reliable. Wallets can predict the base fee from the previous block rather than guessing what a bidding contest will settle at.
Issuance runs in the opposite direction
New ether is created to pay validators for proposing and attesting to blocks. That issuance is the supply-increasing side of the ledger and scales with how much is staked.
Burning is the supply-reducing side and scales with how heavily the network is used. The two are unrelated processes that happen to net against each other.
Whether total supply grows or shrinks in a given stretch is therefore an outcome, not a policy. Busy periods burn more than issuance creates, and quiet ones do the reverse.
What rollups did to the arithmetic
Activity moving to rollups shifted much of the demand for base-layer computation into cheaper data posting, which is priced under its own separate fee market.
That reduces the amount burned per unit of user activity, because the same economic transaction now consumes less of the resource whose fee is destroyed.
Supply behavior consequently reflects where activity happens, not only how much of it there is. The same number of user actions can burn very different amounts.
What burning does not do
Burning is a supply mechanic and says nothing on its own about demand. Removing units from circulation does not create buyers for the units that remain.
It is also not a distribution to holders. Nobody receives anything when fees are burned, and a wallet balance is unchanged by the event.
The accurate framing is narrow: the protocol has a mechanism that ties issuance and destruction to different variables, and the net figure is an observed result of usage.