Ethereum’s journey since the historic Merge in 2022 has been marked by transformative upgrades, evolving tokenomics, and a rapidly expanding Layer-2 ecosystem. One of the most significant shifts occurred with the Dencun upgrade, which dramatically reduced transaction costs across Ethereum’s Layer-2 networks. While this boosted scalability and user adoption, it also had an unintended consequence: a shift from deflationary to inflationary ETH supply.
At the time of the Dencun upgrade, Ethereum’s circulating supply had decreased by approximately 460,000 ETH since the Merge—a testament to its earlier deflationary mechanics. However, as of early 2025, that trend has reversed. The total ETH supply is now nearly back to its pre-Merge levels and is on track to surpass them within weeks if current trends continue.
This raises a critical question for investors, developers, and long-term stakeholders: Can Ethereum regain its deflationary status? To answer this, we need to examine the interplay between Layer-2 growth, blob usage, and network fee dynamics.
The Rise of Layer-2 Dominance
Following the Dencun upgrade, transaction activity on Ethereum underwent a seismic shift. Layer-2 solutions—scaling platforms built on top of Ethereum—saw explosive growth due to drastically lower fees enabled by blob transactions.
Before Dencun, around 31% of all Ethereum-related transactions occurred directly on Layer-1 (the main Ethereum blockchain), while 69% were processed on Layer-2s. By January 2025, that ratio had flipped dramatically: only 10% of transactions now occur on Layer-1, with 90% handled by Layer-2 networks.
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This migration reflects a major success in Ethereum’s scaling roadmap. But there's a catch: despite handling the vast majority of transactions, Layer-2s contribute far less to ETH fee burn than Layer-1 activity.
Fee Disparity Between Layers
Even though Layer-2s process most transactions, they still generate minimal fee revenue for Ethereum. In fact, 80% of total transaction fees are still paid by Layer-1 transactions, despite their minority share of activity.
Among Layer-2s, Base leads the market, accounting for over 60% of all Layer-2 transaction volume and nearly 10% of total Ethereum network fees. In December 2024 alone, Base processed close to 290 million transactions—a new record high.
Yet even with such high throughput, the actual ETH burned from Layer-2 operations remains low. This is because blob transactions—while efficient—burn significantly less ETH than traditional calldata-based transactions on Layer-1.
Understanding Blob Usage and Its Impact
The Dencun upgrade introduced blobs, a new type of data storage designed specifically for Layer-2 rollups. Each blob can carry up to 128KB of data and is stored temporarily on Ethereum for only 18 days, reducing long-term storage burden on validators.
Multiple blobs can be included per block, with a current maximum of 6 blobs per block and a target of 3. When usage exceeds the target, fees increase dynamically—similar to EIP-1559’s base fee mechanism—creating potential for higher ETH burns during peak demand.
Since October 2024, blob usage has consistently hovered around the 3-blob target. As a result, blob fees have remained relatively stable—but not high enough to drive meaningful deflation.
Blobs Are Now a Top Burn Source
Despite moderate fees, blob transactions have become one of the largest sources of ETH burn. Over the past 30 days alone, more than 1,200 ETH has been burned through blob fees. That places blob-related burns as the fourth-largest category on Ethereum—behind only Uniswap trades, ETH transfers, and USDT (Tether) transactions.
Still, this pales in comparison to decentralized exchanges like Uniswap. In fact, Uniswap alone burns more ETH than all Layer-2 networks combined—a trend that could intensify if Uniswap migrates fully to its own Unichain ecosystem.
Currently, total daily transaction volume across all Layer-2s sits at about 19 million, a level maintained since August 2024. There’s a clear correlation between overall transaction count and blob usage: as more users transact on Layer-2s, more blobs are required.
If transaction volume increases significantly—pushing blob usage beyond the 3-per-block target—fees will rise sharply, leading to greater ETH burns and potentially restoring deflationary pressure on the supply.
Will Ethereum Become Deflationary Again?
As of now, Ethereum’s supply is inflationary, producing new ETH faster than it is being burned. This marks a notable departure from the deflationary periods seen after the Merge, when high base fees led to substantial net burns.
For Ethereum to return to deflation, one or more of the following must happen:
- A significant spike in Layer-2 transaction volume that pushes blob usage above target.
- Higher data demand per transaction (e.g., larger or more complex rollup batches).
- Additional dApps or protocols launching directly on Layer-1 with high calldata usage.
- Further protocol changes that increase burn rates or reduce issuance.
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The key variable is blob fee pressure. If average blob usage climbs toward 4–6 per block regularly, fee spikes will follow—and so will increased ETH burns. This could tip the balance back into deflation, especially if combined with sustained DeFi or NFT activity on Layer-1.
However, unless transaction demand surges dramatically, Ethereum is likely to remain in an inflationary state for the foreseeable future.
Frequently Asked Questions (FAQ)
Is Ethereum currently inflationary or deflationary?
Ethereum is currently inflationary. Since the Dencun upgrade in March 2023, the rate of new ETH issuance has exceeded the amount being burned through transaction fees, leading to a net increase in supply.
What caused Ethereum to become inflationary?
The primary driver was the Dencun upgrade, which shifted most transactions to Layer-2s using low-cost blob data. While this improved scalability, it reduced overall fee burn because blob transactions burn less ETH than traditional Layer-1 transactions.
Can Ethereum become deflationary again?
Yes—but only if network activity increases enough to push blob usage above the target of 3 per block. This would raise blob fees and increase ETH burns. Alternatively, renewed high-demand activity on Layer-1 could also restore deflation.
How much ETH has been burned from blob fees?
Over the past 30 days, more than 1,200 ETH has been burned through blob transaction fees. This makes blob-related burns one of the top four sources of ETH destruction on the network.
Why do Layer-2s pay more in blob fees than gas fees?
Layer-2s submit batched transaction data to Ethereum using blobs instead of standard calldata. This process incurs blob fees rather than traditional gas fees. Since blobs are priced separately and used heavily by rollups, these fees dominate their cost structure.
What happens if blob usage reaches 6 per block?
When blob usage exceeds the target of 3 per block, fees rise exponentially due to EIP-4844’s dynamic pricing model. At full capacity (6 blobs/block), fees could become very high—potentially making Layer-2 transactions more expensive but also increasing ETH burn rates significantly.
The future of Ethereum’s monetary policy hinges not just on protocol design—but on real-world usage patterns. While scalability has improved immensely thanks to blobs and Layer-2 innovation, maintaining a healthy balance between low fees and sustainable tokenomics remains a challenge.
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As adoption grows and new applications emerge, the network may yet see another era of deflation—powered not by higher gas wars, but by intelligent scaling and optimized data usage. Until then, Ethereum watchers should keep a close eye on blob metrics, Layer-2 throughput, and fee distribution across the ecosystem.
Keywords: Ethereum supply, Dencun upgrade, blob usage, Layer-2 transactions, ETH burn rate, inflationary Ethereum, deflationary crypto, Ethereum tokenomics