The Ethereum ecosystem is at a pivotal moment regarding its economic narrative. With the Dencun upgrade drastically reducing transaction fees on the mainnet, the rate of ETH burning has fallen to one of its lowest levels since The Merge. This has reignited a crucial debate: is it time for Ethereum to move away from promoting the "Ultrasound Money" concept?
This discussion is essential, though it's uncertain whether the outcome is ultimately positive or negative. The core of the issue lies in a fundamental shift in user activity and economic incentives driven by Layer 2 (L2) scaling solutions.
The Shift in User Activity and Economic Model
A central pillar of Ethereum's modular roadmap has always anticipated a user migration. The plan foresaw a decline in mainnet activity as participants moved to their preferred L2 solutions. The overall flow of users was expected to disperse across numerous early L2s, the mainnet, and alternative Layer 1 blockchains.
This migration was meant to be balanced. New L2s would compete for the same block space, driving demand for ETH block space. This demand, fueled by cost-insensitive users (the L2s themselves), would activate the burn mechanism, creating a scenario where the ecosystem enjoys both a deflationary trend (making ETH "ultrasound") and mass adoption through scalable L2s.
However, the post-Dencun reality tells a different story. The introduction of blobspace has allowed L2s to process transactions at a significant discount. This has led to a new, unexpected trend.
The Rise of the L2 "Black Hole"
Instead of a dispersed ecosystem, we are witnessing a consolidation of power. Individual L2 networks are now handling a dramatically increasing volume of transactions and throughput while their costs to use Ethereum remain relatively stable.
For example, a leading L2 has seen its transaction count increase by approximately 75% and its throughput double in a recent 90-day period. Crucially, its payments to the Ethereum mainnet stayed flat during this massive growth.
This creates a "black hole" effect. A dominant L2 can absorb users from across the Ethereum ecosystem without proportionally increasing the amount of ETH being burned. The power law takes effect; a few major L2s attract a disproportionate share of users, while Ethereum's base layer utilization remains low. The cost to publish data to Ethereum stays relatively constant, even as these L2s experience hyper-growth.
This dynamic directly challenges the "Ultrasound Money" thesis, which relies on sustained and growing fee burning to create a deflationary pressure on ETH.
The Case for Retiring the Narrative
Given this new economic reality, there is a strong argument for retiring the "Ultrasound Money" promotional concept. For the foreseeable future, especially on the fast-moving timescale of crypto, it may not be a primary driver of value.
This isn't necessarily a bad thing. If the goal is for Ethereum to function as a settlement and security layer for a vast ecosystem of L2s, a mildly inflationary model can be beneficial. It aids liquidity and the broader distribution of ETH across all these interconnected networks. Artificially enforcing extreme scarcity through burning could potentially hinder these network effects.
The narrative, while intellectually interesting, may no longer accurately reflect the practical economic forces at play within the expanded Ethereum universe. For a detailed look at how these economic models are evolving across different networks, you can explore more strategies for understanding on-chain economics.
Broader Implications and Considerations
Beyond the core narrative, several other factors are important to consider in this discussion.
The focus for core developers should remain on advancing the modular roadmap. While one could argue that scaling the Layer 1 more aggressively and earlier might have been preferable, the current path of empowering L2s offers significant benefits in user education and economic efficiency. The focus should be on optimizations that reduce unnecessary complexity while maintaining the overall strategic direction.
Furthermore, the recent approval of Ethereum ETFs represents a structural, game-changing event. These financial products are likely to have a far greater impact on ETH's value proposition and price discovery in the coming years than nuances in its monetary policy. For many new institutional investors, the "Ultrasound Money" debate will be largely irrelevant compared to the accessibility provided by the ETFs.
There is also a note of irony. The very fact that L2s can build profitable businesses on top of Ethereum while managing costs is a bullish signal for the ecosystem's utility. It provides a clear blueprint for other enterprises to monetize their user bases within the Ethereum framework, even if their economic relationship with the mainnet is extractive in nature.
Frequently Asked Questions
What is "Ultrasound Money"?
"Ultrasound Money" is a term coined to describe Ethereum's potential post-Merge monetary policy. It suggests that if the amount of ETH burned through transaction fees (EIP-1559) exceeds the new ETH issued to validators, the net supply of ETH would decrease, making it a deflationary or "ultrasound" asset with increasing scarcity.
How did the Dencun upgrade change this?
The Dencun upgrade introduced proto-danksharding, which created "blobspace" for data. This dramatically reduced the cost for Layer 2 networks to post transaction data to the mainnet. As a result, the fees paid (and subsequently burned) by these L2s plummeted, reducing the overall burn rate and making Ethereum mildly inflationary again.
If not "Ultrasound Money," what is Ethereum's value proposition?
Ethereum's primary value proposition shifts to being a decentralized settlement layer and security backbone. Its value is derived from securing hundreds of billions of dollars in assets and providing trustless finality for a vast ecosystem of Layer 2 rollups and other applications, rather than purely from a deflationary monetary policy.
Will ETH still be a good investment if it's inflationary?
An asset's investment potential isn't solely determined by its inflation rate. Ethereum's value is tied to its utility and adoption. As the ecosystem grows and more value is secured and transacted atop Ethereum, demand for ETH for staking and gas fees on L2s could outweigh the impact of a low, predictable inflation rate.
Can the "Ultrasound Money" narrative return?
Yes, it's possible. If activity on the mainnet itself surges or if L2 adoption grows so immense that even low blob fees aggregate into a massive burn total, the deflationary pressure could return. The monetary policy is responsive to network usage.
What should an Ethereum user do now?
Users should continue to engage with the ecosystem, primarily through Layer 2s for everyday transactions due to their low costs. Understanding that Ethereum's value is multifaceted—encompassing security, decentralization, and a thriving app ecosystem—is key, rather than focusing on a single narrative. To engage with these ecosystems, you can view real-time tools that track network activity and fees.