The concept of “ultrasound money” was a cornerstone of the investment thesis surrounding the leading smart contract network over the past several years. Following the implementation of EIP-1559, the network entered a deflationary regime: the base transaction fee was permanently burned, and the issuance of new coins was insufficient to offset that amount. In 2026, however, this narrative encountered a harsh mathematical reality. The mass migration of user activity and liquidity to second-layer solutions (Layer 2, or L2) led to a sharp decline in base-layer utilization (L1). As a result, burn volumes collapsed and the network returned to a state of net inflation, forcing analysts and investors to completely reassess the asset’s monetary policy.
📊 Key Fact: According to data from the Ultrasound.money analytics platform, following the implementation of the Dencun upgrade (EIP-4844), which reduced data costs for L2 rollups by approximately 90%, the daily amount of burned coins fell to an average of 800–1,200 ETH. With current staking issuance standing at approximately 1,500–1,800 ETH per day, the network’s net inflation stabilized at +0.4% to +0.8% annually, officially moving the asset out of deflationary territory.
Before L2 networks became dominant, the base layer processed the vast majority of all transactions. The EIP-1559 mechanism divided transaction fees into two components: a tip paid to miners or validators (priority fee) and a base fee, which was burned. During periods of intense activity, such as the NFT and DeFi booms of 2021–2022, the base fee rose to hundreds of gwei. As a result, more coins were burned in a single block than were created as validator rewards, making the asset deflationary.
This model created a powerful economic incentive for holders: the more actively the network was used, the smaller the total coin supply became, which theoretically should have pushed the price higher.
“There are no solutions in economics, only trade-offs. Successful scaling in one area inevitably creates an imbalance in another.” — Milton Friedman, Nobel Prize-winning economist.
The paradox is that the “breakdown” of the deflationary model is a direct consequence of the success of the network’s scaling roadmap. Second-layer solutions such as Arbitrum, Optimism, Base, and zkSync took over the majority of transaction execution, leaving the base layer primarily responsible for data availability and final settlement.
| Parameter | L1-Dominant Era | L2-Dominant Era (2024–2026) |
|---|---|---|
| Daily Transactions (L1) | 1.0–1.2 million | 0.9–1.1 million (stagnation) |
| Daily Transactions (L2) | < 0.5 million | 15–25 million (explosive growth) |
| Average Base Fee (L1) | 30–100+ gwei | 2–10 gwei |
| Share of Fees Burned From L2 Activity | N/A | Only data-publication fees; after EIP-4844, these amount to almost nothing |
The implementation of EIP-4844 (Proto-Danksharding) marked a turning point. It introduced “blobs,” a form of temporary data storage whose cost is orders of magnitude lower than that of a standard contract call. Although this made L2 transactions exceptionally cheap for users, often costing less than $0.01, it also meant that L2 networks began paying the base layer negligible fees to publish their data. The burn mechanism lost its primary source of fuel.
💡 Practical Takeaway: Coin burning now depends not on the number of user transactions across the ecosystem, but almost entirely on demand for L1 blockspace from major institutional participants, bridges, and L2 operators themselves. Under calm market conditions, that demand remains low.
A return to inflation does not mean the collapse of the network, but it fundamentally changes the asset’s macroeconomic profile. It is transforming from a “deflationary asset with a hard supply” into an “inflationary yield-bearing asset,” bringing it closer to traditional dividend-paying equities or government bonds than to digital gold.
Protocol developers face a classic dilemma. The objective was to create a scalable, inexpensive, and accessible global computing platform. That objective has been achieved: L2 networks are thriving, the onboarding of new users is increasing, and the application ecosystem is expanding.
However, the side effect of this success has been the loss of monetary “hardness.” If the network insists on artificially maintaining high L1 fees in order to burn more coins, it will undermine the competitiveness of L2 solutions and push users toward cheaper alternative L1 networks such as Solana. If it allows L1 fees to remain low in order to preserve L2 dominance, it must sacrifice the deflationary narrative.
The network chose scalability and utility over artificial deflation. This is a mature and pragmatic decision, but the market needs time to revalue the asset based on its new fundamentals.
Rather than mourning the end of “ultrasound money,” institutional investors are beginning to reassess the asset through the lens of Real Yield. Even with net inflation of 0.5% annually, staking generates approximately 3%–4% per year. This produces a positive real return of 2.5%–3.5% after inflation, making the asset attractive to large funds seeking stable cash flow rather than a speculative deflationary shock.
The situation within the network has a direct parallel in traditional corporate governance. Imagine a technology company that actively buys back its own shares from the market, similar to burning coins, in order to support a higher share price. Short-term shareholders appreciate this. However, to survive over the long term, the company must invest its profits in new products, expansion into new markets, and lower prices for customers—the equivalent of developing L2 infrastructure and reducing transaction fees.
When a company redirects capital away from share buybacks and toward aggressive expansion and lower prices, its short-term financial appeal, such as earnings per share, may deteriorate. Yet this is precisely what can allow it to become a market monopoly. The network chose market expansion and utility over short-term monetary perfectionism. History shows that platforms delivering genuine value to users are the ones that survive over the long term, not those that merely manipulate their supply.
The end of the “ultrasound money” era in its original, idealized form is not a catastrophe, but an evolution. The network is maturing, transitioning from a phase of aggressive monetary experimentation to that of a mature, scalable global computing platform. Investors who understand this transformation and adjust their strategies away from searching for deflationary magic and toward evaluating real utility and yield will be better positioned in the new market cycle.
“Inflation is always and everywhere a monetary phenomenon. But in the world of blockchains, inflation can be a deliberate trade-off made in pursuit of technological sovereignty and mass scalability.” — An adaptation of Milton Friedman’s principle for the realities of Web3.
