The idea of Ethereum as "ultra-sound money"—a deflationary, scarce digital asset driven by continuous ETH burning—has been a compelling narrative since the implementation of EIP-1559 and The Merge. However, recent shifts in network dynamics following the Dencun upgrade are challenging this long-held belief. With Layer 2 (L2) scaling solutions now dominating user activity and drastically reducing on-chain fee pressure, the conditions that once supported sustained ETH burning have weakened. This raises an important question: Is it time for Ethereum to let go of the ultra-sound money concept?
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The Decline of ETH Burning Post-Dencun
Since the Dencun upgrade introduced proto-danksharding and blob transactions, Ethereum’s fee market has undergone a structural transformation. Transaction costs on L2s have plummeted—by as much as 90% in some cases—thanks to cheaper data availability via blobspace. While this is a win for scalability and user adoption, it comes at a cost: significantly reduced ETH issuance burn rates.
Data from analytics platforms like CryptoQuant show that ETH destruction has hit some of the lowest levels since The Merge. With fewer fees being paid directly to validators and burned through base fees, Ethereum has temporarily returned to an inflationary state under current issuance-burn dynamics.
This shift isn’t accidental—it’s by design. The vision behind Ethereum’s modular future has always included a migration of user activity away from the mainnet (L1) to specialized L2 networks. But what happens when that migration succeeds too well?
The L2 Dominance Effect
As users move to L2s like Base, Arbitrum, and Optimism, they enjoy faster transactions and lower costs. These networks batch thousands of transactions and post minimal data back to Ethereum, creating massive throughput with minimal L1 footprint.
Consider Base’s performance over the last 90 days:
- Transaction volume increased by ~75%
- Network throughput doubled
- Yet, its cost to Ethereum remained flat
This efficiency is revolutionary—but it also means more economic activity without proportional increases in ETH burned. In essence, dominant L2s are becoming black holes for users: they absorb demand, grow ecosystems, and scale infinitely—all without contributing meaningfully to ETH’s deflationary mechanics.
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This leads to a critical observation: scaling success may be undermining monetary scarcity.
Power Law Dynamics and Fragmentation Risk
A concerning trend emerging from this landscape is the rise of power law distribution among L2s. Instead of a diverse ecosystem of many competing rollups, we’re seeing one or two dominant players capturing the majority of users, liquidity, and developer attention.
This concentration creates several challenges:
- Reduced competition can lead to complacency and centralization risks.
- Smaller L2s struggle to gain traction despite technical innovation.
- Most importantly, the overall demand for Ethereum blockspace remains stagnant, even as usage explodes off-chain.
Even if dozens of new L2s launch, if their data publishing costs stay fixed due to blobspace efficiency, ETH burn rates won’t rebound—no matter how much activity occurs across the ecosystem.
So while Ethereum secures these chains and provides finality, its native asset isn’t directly benefiting from their growth in terms of supply contraction.
Rethinking Ethereum’s Monetary Policy
Given these realities, should Ethereum continue promoting the “ultra-sound money” narrative?
Perhaps not—at least not in the near term.
The original appeal of ultra-sound money relied on two assumptions:
- Continued high demand for L1 blockspace.
- A fee market where increased usage directly translates into more ETH burned.
Both assumptions are now outdated. Ethereum is evolving into a settlement and security layer—not a user-facing transaction chain. And that’s okay.
In fact, mild inflation might be preferable in this new role. A slightly expanding ETH supply could:
- Improve liquidity across decentralized applications.
- Support staking participation without over-concentrating wealth.
- Facilitate broader distribution of ETH across global users and protocols.
Compare this to Bitcoin’s hard cap model: extreme scarcity has made it a strong store of value but limited its utility as a medium of exchange or programmable asset. Ethereum may be choosing a different path—one optimized for ecosystem growth over artificial scarcity.
Frequently Asked Questions
Q: Does less ETH burning mean Ethereum is failing?
A: Not necessarily. Lower burns reflect successful scaling. The goal of Dencun was to make Ethereum usable for billions, not just maximize fee revenue. Efficiency gains outweigh short-term monetary effects.
Q: Can ETH ever become deflationary again?
A: Yes—but it would require either a major spike in L1 usage or protocol-level changes (e.g., increasing burn intensity or reducing issuance). For now, deflation is unlikely under normal conditions.
Q: Are L2s bad for Ethereum’s value proposition?
A: No. L2s strengthen Ethereum by expanding its reach. They increase reliance on Ethereum for security and settlement, reinforcing its central role—even if they don’t burn much ETH.
Q: What role does ETF approval play in all this?
A: A spot ETH ETF would be transformative. It would bring institutional capital, improve price discovery, and decouple Ethereum’s valuation from short-term burn metrics. All other debates become secondary in comparison.
Q: Is “ultra-sound money” still relevant post-Dencun?
A: As a near-term monetary reality? Probably not. But as a long-term aspirational goal? It remains valuable—especially if future upgrades reintroduce deflation under scaled conditions.
Q: Could Ethereum rework its fee model to restore burning?
A: Possible. Ideas like dynamic blob pricing or tiered data fees could align L2 costs more closely with usage. However, any change must balance fairness, decentralization, and usability.
👉 Explore how next-phase upgrades could redefine Ethereum’s economic model.
Final Thoughts: Evolution Over Ideology
Letting go of the “ultra-sound money” label doesn’t mean abandoning Ethereum’s potential for long-term value accrual. It means recognizing that network health and monetary policy must evolve together.
Ethereum is no longer just a currency or smart contract platform—it’s becoming the foundational trust layer for a multi-chain universe. Its value lies not only in how much ETH is burned, but in how many systems depend on its security, neutrality, and uptime.
Rather than clinging to a narrative built for an earlier era, the community should focus on strengthening Ethereum’s role as the anchor of decentralized finance, identity, and ownership. Scalability was the bottleneck; now that it’s being solved, new questions emerge—not just about money, but about governance, decentralization, and sustainability.
The ultra-sound money dream may be on pause—but the broader vision for Ethereum has never been louder.