The long-standing narrative of Ethereum as “Ultrasound Money”—a deflationary asset designed to shrink in supply over time—faces a pivotal moment. Recent data shows that the circulating supply of Ether (ETH) has not only stopped declining but has now rebounded to levels last seen before The Merge in 2022. This shift raises critical questions about Ethereum’s monetary policy, the impact of recent protocol upgrades, and whether increased network utility is actually undermining ETH’s scarcity.
ETH Supply Now Higher Than at The Merge
According to data from Ultrasound.money, the total supply of ETH has reached 120,521,608, surpassing the amount in circulation on September 15, 2022—the day of The Merge. That means more ETH exists today than when Ethereum transitioned to proof-of-stake.
This marks a dramatic reversal from earlier trends. Between 2022 and early 2024, ETH supply steadily declined due to EIP-1559, which burns a portion of transaction fees. At its lowest point in April 2024, ETH supply dipped to around 120,064,500, fueling optimism about deflationary pressure.
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But that trend has reversed—and fast.
Dencun Upgrade and the Blob Effect: Why ETH Is Now Inflating
The culprit behind this reversal? The Dencun upgrade, deployed in March 2024. While widely celebrated for drastically reducing Layer 2 (L2) transaction costs through blob-carrying transactions, it introduced an unintended side effect: reduced ETH burning.
Before Dencun:
- All transactions paid gas fees.
- A portion of those fees was permanently burned via EIP-1559.
- High network activity = more burns = deflationary pressure.
After Dencun:
- L2 rollups use blob transactions, which have their own fee market (measured in “blob gas”).
- Blob gas fees are not subject to EIP-1559 burning.
- As a result, even with high transaction volume, less ETH is being destroyed.
Jaehyun Ha, analyst at Presto Research, explains:
“Even though network activity remains strong or is growing, the mechanism that once suppressed ETH inflation—the fee burn—is no longer as effective.”
In essence, Ethereum became more scalable and user-friendly, but at the cost of weakening one of its core economic value propositions: scarcity.
Are Users and Liquidity Migrating to Competitors?
Another factor compounding ETH’s supply challenge is the rise of competing ecosystems—particularly Solana.
With surging popularity in memecoins and low-cost trading, Solana has drawn significant user attention and liquidity away from Ethereum. This migration reduces on-chain activity on Ethereum’s mainnet, further limiting opportunities for ETH to be burned through high-gas transactions.
Byoungjoon Kim from DeSpread Research notes that while Ethereum remains dominant in developer activity and total value locked (TVL), perception matters. If users associate innovation and speed with other chains, Ethereum risks becoming a “settlement layer” rather than the primary user interface—valuable, but less directly impactful on ETH demand.
Could Rising Supply Impact Network Security?
Beyond tokenomics, there’s a deeper concern: network security under proof-of-stake (PoS).
Ethereum’s security relies on validators staking ETH. If increasing supply leads to price stagnation or decline, validator rewards lose purchasing power. Over time, this could reduce incentives to participate, potentially weakening decentralization and resilience.
Kim warns:
“ETH price and network security are directly linked. Inflationary pressure without corresponding demand growth could erode confidence in the PoS model.”
While current staking participation remains robust—over 30 million ETH staked—the long-term balance between issuance, rewards, and burn rates will be crucial.
Ethereum’s Broader Evolution: Governance and Scalability Shifts
Amid these economic shifts, Ethereum’s ecosystem is also navigating structural changes.
1. Gas Limit Increased to 31 Million
In a recent community decision, Ethereum’s gas limit was raised from 30 million to 31 million—the first increase since 2021. This modest boost aims to improve throughput during peak usage, supporting growing L2 data publication needs.
While not inflationary by itself, it reflects a broader trend: Ethereum is prioritizing scalability over fee pressure, which indirectly affects burn rates.
2. Leadership Controversy at Ethereum Foundation
Governance tensions have surfaced after a community vote proposed replacing executive director Aya Miyaguchi with former researcher Danny Ryan. Vitalik Buterin publicly opposed the move, highlighting internal disagreements over leadership direction.
Such debates could influence developer morale and roadmap execution—especially as upcoming upgrades like Pectra loom on the horizon.
What’s Next? The Pectra Upgrade and Future of Burning
Scheduled for 2025, the Pectra upgrade may address some of these concerns by adjusting blob limits and potentially revisiting fee mechanics. However, early analysis suggests blob capacity could increase further—exacerbating the burn reduction trend rather than reversing it.
Will future upgrades restore deflation? Or will Ethereum accept a new reality: a slightly inflationary base layer that powers a thriving off-chain ecosystem?
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FAQ: Addressing Key Questions About ETH Supply Trends
Q: Does a rising ETH supply mean Ethereum is failing?
A: Not necessarily. Increased supply reflects higher usage via L2s and improved scalability. The key is whether demand—from staking, DeFi, or institutional adoption—keeps pace.
Q: Is ETH still deflationary during periods of high activity?
A: Occasionally. On days with intense mainnet congestion (e.g., NFT mints), burns can exceed issuance. But overall, the trend since Dencun has been net inflation.
Q: How do blob transactions affect regular users?
A: Positively—they enable cheaper L2 transactions (often <$0.01). But they shift economic value away from ETH burning toward L2-specific tokens or operators.
Q: Can ETH become deflationary again?
A: Yes—if future upgrades reintroduce stronger burn mechanisms or if mainnet usage surges independently of L2s. Pectra or later upgrades could explore such adjustments.
Q: Does this make ETH a worse investment than BTC or SOL?
A: It depends on your thesis. BTC benefits from fixed supply; SOL thrives on velocity and culture. ETH offers utility and staking yield—but its inflation dynamics require closer monitoring.
The Bigger Picture: Utility vs. Scarcity
Ethereum remains the leading smart contract platform, with unmatched developer momentum and institutional interest. The approval of spot ETH ETFs validates its legitimacy in traditional finance.
Yet unlike Bitcoin’s clear “digital gold” narrative, ETH’s value proposition is multifaceted:
- Settlement asset for L2s
- Staking collateral securing the network
- Gas payment for dApps
- Governance participation token
But complexity can hinder mass adoption. If users flock to faster, cheaper chains for memecoins or gaming, does that dilute ETH’s role?
Moreover, while ETF approvals were expected to drive price appreciation, ETH’s rally has been muted compared to BTC or SOL. Why?
Reasons Behind ETH’s Underperformance:
- Market had already priced in ETF approval
- Institutional inflows remain cautious, preferring BTC first
- No immediate supply shock like Bitcoin halving
- Lack of short-term catalysts beyond gradual upgrades
Final Outlook: Potential Remains, But Proof Is Needed
Ethereum’s long-term potential is undeniable. But for the “Ultrasound Money” narrative to regain traction, three conditions must align:
- Sustained institutional inflows into spot ETFs
- L2 success translating back into mainnet value accrual
- Protocol-level adjustments restoring deflationary pressure
Until then, investors may continue to favor assets with clearer narratives or stronger short-term momentum.
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Core Keywords: Ethereum, ETH supply, Ultrasound Money, Dencun upgrade, blob transactions, Layer 2 scalability, proof-of-stake security, spot ETH ETF
Disclaimer: Cryptocurrency investments are subject to high market risk. Prices can fluctuate significantly, and you may lose your entire principal. Please conduct thorough research before making any investment decisions.