Did Layer 2s Undermine Ethereum’s Ultra-Sound Money?

One of Ethereum’s most compelling narratives asserted that each transaction reduced the amount of ETH available, as fees incurred during transactions resulted in ETH being permanently taken out of circulation. However, the network eventually addressed its scaling challenges, leading to a migration of activity to layer-2 solutions, causing the intended burn mechanism to falter. While scaling was successful, the anticipated scarcity did not hold up.

For approximately a year and a half, Ethereum boasted a compelling story in the cryptocurrency space, built on a paradox: increased usage of the network led to a decrease in the availability of its tokens. Each transaction resulted in a marginal burn of ETH, and during peak usage, the network even burned more coins than it produced. This dynamic contributed to a decrease in supply and fostered the label of “ultrasound money,” contrasting Bitcoin’s “sound money” notion.

For a time, the data supported this narrative, but when Ethereum finally scaled as anticipated, the narrative began to unravel. Activity shifted to layer-2 platforms that paid significantly less to the main Ethereum network, undermining the burn mechanism and placing ETH on a path of inflation once again. This article explores how Ethereum’s considerable technical achievement dismantled its most compelling economic story and whether a December upgrade can restore it.

Understanding Ultrasound Money

Appreciating the underlying mechanism here is crucial, as the entire discussion hinges on it.

In August 2021, Ethereum introduced EIP-1559, altering the transaction fee structure. Instead of directly compensating miners, users now paid a base fee for transactions, which was burnt, thus permanently removing it from circulation. As demand on the network increased, so too did the base fee and ETH being destroyed. Initially, this functioned primarily as a fee-burning method. The narrative shifted significantly after Ethereum transitioned from a proof-of-work to a proof-of-stake system during the Merge in September 2022, which reduced the creation of new ETH by about 90% since the network no longer required energy-intensive mining.

Combining both mechanisms framed the ultrasound money thesis. Post-Merge, the issuance of ETH slowed significantly to a trickle. With each transaction continuing to burn ETH, if more ETH was burnt than created, total supply would decline, rendering the asset deflationary. The concept suggested that a deflationary asset with rising demand should, in theory, grow in value, positioning Ethereum as a potentially tougher asset than Bitcoin, which still had a rising supply. A tracking platform called ultrasound.money was created to visually represent this decreasing supply.

After the Merge, the narrative was indeed validated for a period, as supply declined, even dipping below levels observed during the Merge. Burn rates outpaced issuance. This accurate data depiction strengthened the narrative, making its subsequent reversal all the more disconcerting.

The Scaling Dilemma

The turning point came when Ethereum resolved what had long been viewed as its most pressing issue, and the irony is striking.

Ethereum implemented a scaling solution to transition transactions away from the expensive base layer to layer-2 rollups, such as Arbitrum and Optimism, which process transactions more affordably, posting minimal concise data back to Ethereum for security. The base layer’s role shifted to a settlement and data availability provider, with rollups managing most of the transaction activities—this has been the roadmap Ethereum actively pursued for years, and it proved effective.

The March 2024 Dencun upgrade marked a crucial moment, introducing EIP-4844 with “blob” transactions, creating a distinct and significantly less costly data channel for rollups. As a result, costs for these layer-2 solutions plummeted by a factor of 10 to 100. Activities that previously happened on the mainnet, incurring substantial fees and incinerating ETH, transferred to rollups that effectively paid minimal fees, as the supply of blob space far exceeded demand.

The impact on the burn rate was immediate and dramatic. Prior to Dencun, Ethereum burned thousands of ETH daily during peak usage. Following Dencun, daily burn plummeted down to as little as 50 to 70 ETH. The base layer thus lost its primary revenue source. With issuance hovering at around 1,700 ETH per day and the burn rate diminishing significantly, Ethereum began generating more ETH than it incinerated. Through 2025 and into 2026, net annual inflation for ETH ranged from approximately 0.2% to 0.8% depending on specific time frames, marking a reversal of the earlier deflationary thesis.

The original mechanism that justified the ultrasound money assertion, the EIP-1559 burning at scale, had not been revoked. Instead, it had been circumvented. User activity transitioned to layers where meaningful burning was no longer occurring. While Ethereum achieved scaling success, it inadvertently severed the essential connection between usage and scarcity that the entire thesis depended upon.

Supporting Arguments: The Bullish Perspective

Ethereum advocates are not ignoring these challenges; they are reframing the discussion, with some arguments standing robustly.

First, the notion of elastic scarcity is fundamental, rather than a fixed deflation model. Ethereum was never intended to deflate indefinitely at a consistent rate. Instead, its design allowed burning to be directly proportional to demand—which means it will be deflationary during busy periods and mildly inflationary during quieter moments. At times of high mainnet usage (averaging above approximately 16 gwei in gas fees), burns can still outstrip issuance, rendering ETH temporarily deflationary. The operational mechanics are functioning correctly; it’s just that a scaled network spends a more significant portion of time in a less active phase. Thus, the thesis of ultrasound money was always conditional on demand, not on an unwavering promise.

Secondly, the amount of new issuance is still significantly lower than previous figures. Even amidst mild inflation, Ethereum creates roughly 90% less ETH compared to its proof-of-work era. In contrast to Bitcoin, which currently inflates by about 0.8% annually on a fixed schedule, Ethereum’s estimated 0.2% inflation during quieter intervals is comparatively lower. Therefore, in 2026, both assets witness inflation, with Ethereum inflating less by certain metrics. The assertion of being “harder than Bitcoin” holds under a narrower technical context despite the absence of net deflation.

The third argument states that the supply figure might overemphasize sell pressure. Approximately 28% to 30% of total ETH is locked in staking, generating returns rather than circulating in the market. Consequently, the actual tradeable supply of ETH available on exchanges is considerably less than the total supply figure, and this amount shrinks as staked ETH accumulates. Therefore, a modestly inflating total supply, accompanied by a considerable and growing staked portion, presents distinct pressures compared to raw inflation metrics suggest. The demand from ETFs, treasury firms, and staking can accommodate 0.2% inflation without complications.

Lastly, it’s critical to note that the store-of-value argument never relied solely on deflation. As long as the demand for Ethereum’s blockspace—its function as settlement for stablecoins, tokenization, and DeFi—grows at a pace exceeding supply, prices can appreciate even if supply rises by 0.2% annually. While scarcity formed an appealing narrative, utility represents the core thesis.

Critiques: The Narrative’s Importance

From a skeptical standpoint, one could argue that the ultrasound narrative was not merely a marketing ploy; it provided substantial weight to the investment case, and its erosion may have more significant implications than proponents suggest.

The blunt reality is reflected in on-chain data and its observers. Daily network fee revenues on Ethereum plummeted from nearly $40 million in early 2025 to a local low of around $10 million in 2026. This decline is not just a burn issue; it’s indicative of a value-accrual problem. If the base layer struggles to capture fee revenue due to rollups whose contributions are minimal, holding ETH becomes a wager on an asset whose network struggles to monetize its users effectively. Some analyses have linked this directly to a loss of developer engagement and reduced whale activity, suggesting that the decline of ultrasound money has marked the end of a phase where ETH had a clear, quantifiable motive for appreciation.

A more profound issue pertains to structure and cannot be easily disregarded: a scaled, efficient Ethereum naturally results in less deflation than a congested, high-cost one. This represents the crux of the ongoing debate. The very features that elevate Ethereum’s role as an infrastructure—a budget-friendly transaction model, higher throughput, and activity on rapid rollups—concurrently diminish its burn rate. Ethereum cannot concurrently serve as a cost-effective, high-capacity settlement layer and as a fee-burning deflationary asset—that’s an inherent conflict, and given the roadmap’s emphasis on scaling, the asset narrative was, in some sense, sacrificed for the tech ambitions.

Furthermore, the question of value capture becomes sharper with the rise of rollups. Layer 2 solutions utilize Ethereum for security, compensating it scant returns. Robinhood’s own chain exemplifies this: corporate L2 analyses reveal that the base layer acquires a negligible portion of the associated economics while facilitating the necessary security that lends credibility to the entire framework. As Ethereum’s trajectory pivots towards numerous rollups settling cheaply, the network may provide substantial value while failing to secure a meaningful portion of it, and narrative reframing lacks the ability to remedy value-capture flaws entrenched in the fee structure.

Addressing the Problem: Upcoming Changes

This brings us to the Fusaka upgrade enacted on December 3, 2025, which was specifically designed—at least in part—to tackle these ongoing issues, though it has largely flown under the market’s radar.

The Fusaka upgrade focused on scaling further, introducing PeerDAS and expanded blob capacity, but concealed within this were EIP-7918, the “blob base fee bound,” which represents the most direct initiative aimed at restoring the burn mechanism. The issue arising from the Dencun upgrade was that blob fees could collapse to nearly zero during periods of lower execution demand, allowing rollups to utilize Ethereum’s capacity at negligible costs and minimizing burning. EIP-7918 establishes a minimum fee: it links the lowest blob fee to the execution base fee, approximating the execution base fee divided by 16, ensuring that even during slower periods, rollups will incur a meaningful minimum fee, thus guaranteeing a steady stream of ETH burning.

The findings from modeling are revealing. Fidelity Digital Assets researched what might have transpired if EIP-7918 had been active since the introduction of blobs, determining that, on 93% of the days since the Dencun upgrade, the adjusted blob fee would have surpassed the actual fee, inferring a potential additional burn of roughly $78.6 million—or an estimated 24,641 ETH. Blockworks reported that had this mechanism been set up in June 2025, the burned blob fees might have reached nearly eight times their actual level. The aim is clear: to create a safety net for the burn so that as stablecoins, DeFi, and tokenization transition to rollups, ETH still benefits from those activities rather than subsidizing them.

The transparent caveat is that this serves only as a minimum, not a full restoration. EIP-7918 prevents total burns from dwindling to zero; however, it does not reinstate the high levels of daily ETH burnt seen in earlier congested mainnet scenarios. Whether it enables consistent net deflation will hinge on rollup activity and the volumes of execution base fees, and time will tell. This is a serious, well-conceived effort to rekindle the link between usage and scarcity. However, it does not promise a return to the conditions seen in 2022.

Comparing Monetary Concepts: Sound versus Ultrasound Money

Given that the entire thesis was intended as a contrast to Bitcoin, it’s beneficial to compare both monetary models objectively, stripped of tribal biases, as the contrast yields valuable insights.

Bitcoin emphasizes fixed scarcity. Its issuance schedule is embedded in the protocol, capping the total supply at 21 million coins, halving predictably approximately every four years. A holder can ascertain with certainty what Bitcoin’s issuance will be in 2030 or 2040. This reliability constitutes the essence of Bitcoin. It does not react to demand, does not incur burning, nor does it adjust; it simply follows a predetermined issuance path toward its hard cap, with current inflation rates nearing 0.8% annually, trending toward zero over time. Bitcoin holders trade off minimal native utility and yield for this certainty.

Conversely, Ethereum provided—and to a degree still provides—elastic scarcity. Its supply adapts according to network demand: higher utilization leads to increased burns, potentially pushing ETH into deflationary territory; reduced usage permits mild inflation. The appeal lay in a token that became scarcer exactly when it was most in demand, linking scarcity to the success of the network. However, the inherent trade-off emerged: elasticity means that supply can only remain deflationary when demand is high on the layer that drives burns; since Ethereum opted to shift demand to non-burning layers, its flexibility, often celebrated as sophisticated, has now revealed the conditional nature of its monetary promise.

In essence, this comparison reveals distinct products tailored for different audiences—not versions of the same product, but fundamentally different options. Bitcoin prioritizes certainty and requires holders to relinquish yield, while Ethereum promotes utility at the cost of making its scarcity contingent on how effectively that utility is utilized. The ultrasound money phase represented a brief period when Ethereum appeared to promise both—deflation certainty and network functionality—but this phase closed not due to Ethereum’s failures but rather because of its success in scaling.

For a holder choosing between these two assets in 2026, the decision fundamentally revolves around guaranteed scarcity with no yield versus demand-driven scarcity offering staking yields and network utility. Accordingly, the decline of ultrasound money clarifies rather than contradicts Ethereum’s position: it was never intended to replicate Bitcoin, and the burn mechanism masked the inherent differences in these two investment strategies.

Implications for Holding ETH

Setting aside the narrative conflict, the pivotal question remains whether the ultrasound narrative influenced prices, with the uncomfortable answer being that this is difficult to ascertain, as ETH has shown underwhelming performance throughout this period.

The clean perspective illustrates that the ultrasound thesis peaked immediately after the Merge, but has deteriorated consistently since the Dencun upgrade in March 2024. Throughout this timeframe, ETH has been consistently outperformed by both Bitcoin and its previous highs. This could indicate that the market anticipated the loss of the deflation narrative, or that concerns regarding ETH’s value lie elsewhere—such as value leakage from layer-2 solutions, competition from platforms like Solana, or the overarching difficulties of the modular roadmap. Both interpretations have merit, indicating differing conclusions regarding whether remedies to the burning mechanism will restore prices.

The fundamental framing is that ultrasound money operated as a proxy for a central question that remains pertinent: does Ethereum effectively capture value from its own achievements? When the network was congested and costly, the answer was undeniably affirmative; the burn mechanism rendered it discernible. As the network scaled down yesterday’s inefficiencies and became cheaper, the answer grew murky, and the burn failed to articulate the narrative. EIP-7918 represents an effort to bring clarity back to value capture.

Success will be determined not by marketing projections but rather by two metrics over the coming year: net ETH supply and base-layer fee revenues. Should both indicators trend positively, the narrative may experience a resurgence. If not, then ultrasound money will be remembered as a fleeting phase, with Ethereum’s case relying solely on its utility—an argument that is more complex and slower-paced than one promising reduced supply.

Frequently Asked Questions

Disclaimer: This article is intended for informational and educational purposes and does not constitute financial or investment advice. It discusses monetary mechanics and network upgrades potential effects that are uncertain and evolving. The content is not a recommendation for the purchase or sale of any assets. Always conduct your own research. Figures regarding supply, burning, and inflation are continually updated and accurate as of July 17, 2026.