Ethereum’s “ultrasound money” meme sees the altcoin as an increasingly deflationary asset due to transaction fees being burned on the mainnet. The idea was that this would reduce the overall ETH supply making it scarce and valuable over time. However, an expert believes the token’s current dynamics have challenged this narrative mainly due to the arrival of Layer 2 solutions in the network’s scaling strategy.
Especially since Dencun’s launch in March 2024, a significant migration of users to L2s has altered the landscape. These include capturing the execution rewards, handling a large portion of transactions, and leveraging blob space to process transactions at a fraction of the cost. All these have led to a reduced volume of transactions on the mainnet.
“Why do I say this? Because it’s unlikely we see a point where L2s recapture sustained ETH burn at pre-Dencun (March ’24) levels now that users have been asked to migrate away from mainnet.“
However, this shift was envisioned in Ethereum’s modular roadmap, which predicted a drop in mainnet activity as users moved to L2 solutions. Initially, this would have been balanced by an increasing number of L2s vying for blockspace, potentially driving ETH burn rates back up. However, the current situation is different. Dominant L2s are absorbing a lion’s share of transactions, often without increasing costs to Ethereum.
“Singular L2s are eating up more and more transactions and throughput while keeping their costs to Ethereum relatively static.“
One such example is Base, one of the leading L2s, which saw a 75% increase in transactions and a 100% rise in throughput over the past 90 days, while payments to Ethereum have remained static.
Ethereum’s Modular Path Forward
This development calls into question the sustainability of the ultrasound money narrative. If dominant L2s continue to expand without driving up ETH burn rates, Ethereum’s inflationary pressure may persist. This isn’t necessarily detrimental, as a certain level of inflation could support broader ecosystem velocity and user adoption.
Looking forward, Ethereum developers should continue advancing the modular roadmap and refining the network’s scaling solutions, rather than reverting focus solely to L1 scaling. Meanwhile, the introduction of Ethereum ETFs represents a significant structural shift, likely overshadowing these ongoing debates about ETH’s deflationary status.
