Ethereum may need to reconsider its long-held "ultra-sound money" narrative — not because the vision is flawed, but because the ecosystem's evolution has shifted the economic reality. The idea that ETH could become deflationary through consistent burn mechanisms, especially via L1 transaction fees, was compelling. But with the rise of Layer 2 (L2) networks and the Dencun upgrade, that model is no longer the dominant force it once seemed.
This isn't necessarily bad news. In fact, it might be a necessary evolution. Let’s explore why the ultra-sound money narrative may no longer be central — and how Ethereum can still thrive without it.
The Shift from L1 to L2: A New Economic Reality
The Dencun upgrade, implemented on March 24, introduced blobspace, a game-changing mechanism that drastically reduces data storage costs for L2 rollups. As a result, L2s like Base, Arbitrum, and Optimism have seen explosive growth in user activity and transaction volume — all while placing minimal additional fee pressure on the Ethereum mainnet.
👉 Discover how next-gen blockchain scalability is reshaping user economics.
Here’s what’s happening:
- Users are migrating from L1 to L2s for cheaper, faster transactions.
- L2s batch transactions and post compressed data to Ethereum, paying in ETH for blobspace.
- However, this cost scales sublinearly — meaning even as user numbers grow exponentially, the ETH burned does not increase proportionally.
As a result, ETH burn rates have not rebounded to pre-Dencun levels, despite a surge in overall network usage. The dream of sustained deflation through transaction demand on L1 is fading — not due to lack of adoption, but because adoption is happening elsewhere.
The Black Hole Effect of Dominant L2s
Today’s L2 landscape is becoming increasingly centralized around a few dominant players. These networks act like economic black holes, absorbing users, developers, and liquidity from smaller chains — including other L2s.
Consider Base’s metrics over the past 90 days:
- Daily active addresses have surged.
- Transaction volume has skyrocketed.
- Yet, the incremental ETH cost to Ethereum’s mainnet remains relatively flat.
This creates a paradox: the healthier the ecosystem appears, the less ETH is burned on L1. As more activity shifts off-chain, Ethereum becomes less of a “user chain” and more of a settlement and security layer.
And that’s okay.
In fact, it might be optimal.
Ethereum as a Settlement Layer: Inflation Isn’t the Enemy
If Ethereum’s primary role evolves into a foundational settlement and consensus layer — rather than a high-throughput user-facing chain — then modest inflation or neutral supply dynamics aren’t致命.
Think of it this way:
Would you rather have a scarce asset with low usage, or a slightly more abundant one securing trillions in value across hundreds of scalable ecosystems?
The ultra-sound money narrative prioritizes scarcity. But monetary policy in a modular blockchain world must also account for distribution, accessibility, and ecosystem growth.
👉 See how blockchain settlement layers are redefining digital value transfer.
Artificially constraining ETH supply could hinder developer incentives, staking accessibility, and cross-chain liquidity distribution. Bitcoin’s deflationary model works for its use case — digital gold. But Ethereum aims to be more: programmable money, decentralized infrastructure, and a global settlement layer.
Scarcity helps, but it’s not the only factor driving long-term value.
Why the Core Devs Made the Right Call
Some argue that Ethereum should have focused more on scaling L1 before fully embracing modularity. But hindsight is 20/20.
The reality is:
- L1 scaling has hard technical limits (security vs. decentralization trade-offs).
- User behavior has already shifted toward L2s.
- The economic benefits of modular design — lower costs, faster innovation, specialized chains — now outweigh the benefits of cramming everything onto L1.
Continuing down the modular path makes sense. That means:
- Optimizing L1 for data availability and security.
- Simplifying protocols (e.g., reducing unnecessary complexity like pre-confirmations).
- Maintaining fast block times to support L2 finality.
The goal isn’t to maximize ETH burns — it’s to maximize ecosystem resilience and adoption.
ETFs: The Real Game Changer
While debates rage over tokenomics, one development could overshadow them all: the potential approval of an Ethereum spot ETF.
Let’s be clear — an ETH ETF would be a structural game changer. It would:
- Open Ethereum to institutional capital at scale.
- Provide regulated exposure without custody risks.
- Anchor ETH’s value in traditional finance metrics.
All other narratives — deflation, burn rates, L2 dominance — may become secondary in comparison. Once ETFs arrive, the conversation shifts from “Will ETH deflate?” to “How much capital can Ethereum absorb?”
And that’s a far more bullish question.
FAQs: Addressing Key Questions
Q: Does abandoning the ultra-sound money narrative mean ETH will lose value?
A: Not necessarily. Value is driven by utility, security, and adoption — not just scarcity. Ethereum’s role as a settlement layer for a multi-trillion-dollar ecosystem can support price growth even without deflation.
Q: Are L2s bad for Ethereum because they reduce fee burns?
A: No. While they reduce direct L1 fee pressure, they increase Ethereum’s relevance as a secure base layer. More L2 activity means more demand for Ethereum’s security and data availability.
Q: Can Ethereum still be considered sound money if it’s not deflationary?
A: “Sound money” doesn’t require deflation. It requires predictability, security, and trust. Ethereum’s monetary policy can evolve while still maintaining these core attributes.
Q: What happens to stakers if ETH isn’t burning?
A: Stakers earn rewards from issuance and MEV (miner extractable value). Even without burns, staking remains economically viable as long as network security is valued.
Q: Is the modular roadmap final? Could Ethereum revert to L1 scaling?
A: The momentum is firmly behind modularity. Reversing course would disrupt ecosystem expectations and developer momentum. Optimization of L1 continues, but not at the expense of L2 innovation.
Q: How soon could an ETH ETF be approved?
A: While timing is uncertain, multiple applications are under SEC review. Many analysts expect approval in 2025, which could trigger a major market re-rating.
Final Thoughts: Evolution Over Dogma
The ultra-sound money narrative was powerful — but narratives must evolve with reality. Ethereum is no longer just a transactional chain; it’s the backbone of a decentralized internet.
Rather than clinging to outdated metrics like daily burn rates, we should focus on what truly matters: ecosystem health, security strength, developer activity, and real-world adoption.
ETH doesn’t need to be deflationary to be valuable. It just needs to remain indispensable.
👉 Stay ahead of the next crypto market shift with real-time insights and tools.
Core Keywords: Ethereum, ultra-sound money, Layer 2, ETH burn, modular blockchain, Ethereum ETF, settlement layer, blockchain scalability