Ethereum’s “Ultrasound Money” Meme Faces a Challenge From Layer 2 Solutions

Ethereum’s “ultrasound money” meme sees the altcoin as an increasingly deflationary asset due to transaction fees being burned on the mainnet.

Ethereum’s “ultrasound money” narrative has been a popular topic of discussion within the cryptocurrency community. The concept suggests that ETH is an increasingly deflationary asset due to transaction fees being burned on the mainnet. This process is designed to reduce the overall ETH supply, making it scarce and valuable over time.

However, an expert has highlighted an interesting dynamic that may be challenging this narrative, specifically related to the integration of Layer 2 (L2) solutions in Ethereum’s scaling strategy.

As explained by the expert, the arrival of L2s has shifted the landscape, especially following the launch of Dencun in March 2024. A significant migration of users to L2s has occurred, capturing the execution rewards and handling a large portion of transactions.

Furthermore, the utilization of blob space on L2s has enabled the processing of transactions at a fraction of the cost compared to the mainnet. This has led to a reduced volume of transactions on the mainnet, ultimately impacting the ETH burn rate.

“Why do I say this? Because it’s unlikely we see a point where L2s recapture sustained ETH burn at pre-Dencun (March ’24) levels now that users have been asked to migrate away from mainnet,” the expert noted.

This shift was, however, anticipated in Ethereum’s modular roadmap, which predicted a drop in mainnet activity as users transitioned to L2 solutions. To compensate for this, an increasing number of L2s would be vying for blockspace, potentially driving ETH burn rates back up.

However, the current situation differs. Dominant L2s are absorbing a lion’s share of transactions, often without increasing costs to Ethereum.

“Singular L2s are eating up more and more transactions and throughput while keeping their costs to Ethereum relatively static,” the expert added.

One example highlighted is Base, a leading L2 that has witnessed a 75% increase in transactions and a 100% rise in throughput over the past 90 days. Despite this growth, payments to Ethereum have remained largely static.

This development raises questions about the sustainability of the ultrasound money narrative. If dominant L2s continue to expand without driving up ETH burn rates, Ethereum’s inflationary pressure may persist.

While this may not be inherently detrimental, as a certain level of inflation could support broader ecosystem velocity and user adoption, it does present a different scenario from the narrative of ETH becoming "sound money."

Moving forward, Ethereum developers are expected to continue advancing the modular roadmap and refining the network’s scaling solutions. Rather than reverting focus solely to L1 scaling, a comprehensive approach that includes both L1 and L2 optimizations is likely to yield the best results.

It is also worth noting the recent introduction of Ethereum exchange-traded funds (ETFs), which marks a significant structural shift in the market. This development is likely to overshadow the ongoing debates about ETH’s deflationary status.

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