Ethereum’s native token, Ether (ETH), has seen its total supply climb back to levels last observed before the historic Merge upgrade in September 2022. As of early 2025, the circulating supply stands at approximately 120.5 million ETH—the highest since January 2023—matching the pre-consensus shift volume and reigniting discussions around Ethereum’s long-term monetary policy.
This resurgence in supply contrasts sharply with the deflationary trend that followed the 2022 Merge, when ETH briefly became a deflationary asset due to EIP-1559’s fee-burning mechanism outpacing new issuance. However, recent network upgrades, particularly Dencun, have altered this dynamic, leading analysts to question the sustainability of Ethereum’s “ultrasound money” narrative.
The Dencun Effect: How Blob Transactions Reduced Fee Burns
The Dencun upgrade, implemented in March 2024, introduced support for blob-carrying transactions—a key innovation designed to drastically reduce Layer 2 (L2) transaction costs by offloading data storage from the mainnet.
“With Dencun, Ethereum introduced a new fee market for blob transactions, which use a separate ‘blob gas’ pricing mechanism distinct from traditional gas,” explains Jaehyun Ha, analyst at Presto Research. “While this boosts scalability, it also means less ETH is being burned.”
Prior to Dencun, most user activity incurred standard gas fees under EIP-1559, where a significant portion of each transaction fee was permanently removed from circulation. But blob transactions operate under a different economic model: they consume blob gas, which is priced independently and does not contribute to the same level of token burn.
As L2 adoption surged post-Dencun—driven by cheaper rollup transactions—much of Ethereum’s transaction volume migrated to this new system. The result? A sharp decline in the rate of ETH destruction, tipping the balance from deflation back toward inflation.
From Deflation to Inflation: Reversal of Post-Merge Trends
After the Merge, Ethereum experienced a brief period of deflation. By April 2024, ETH supply had dipped to around 120,064,500—its lowest point—thanks to robust on-chain activity and consistent fee burns. But within months, supply began climbing again.
This reversal coincided directly with Dencun’s activation. With fewer fees being burned and staking rewards still being issued, net issuance turned positive. Today’s supply of ~120.5 million ETH exceeds even the pre-Merge level by roughly 383 tokens.
While absolute numbers may seem small, the trend is what concerns experts. The core idea behind “ultrasound money” was that Ethereum would become increasingly scarce over time due to structural deflation. That narrative now faces pressure.
“Dencun’s design prioritizes scalability over scarcity,” says Ha. “It’s a necessary trade-off for mass adoption, but it does weaken one of ETH’s strongest value propositions.”
Pectra Upgrade Looms: More Blob Space Ahead
Looking ahead, the upcoming Pectra upgrade, expected in the first half of 2025, could further amplify supply inflation.
One of its key components includes an Ethereum Improvement Proposal (EIP) to increase both the blob transaction target and maximum limit per block. This means more data can be processed via low-cost L2 solutions—but also implies an even greater share of non-burning transactions.
“If Pectra raises blob capacity as planned, we could see sustained positive issuance,” warns Ha. “That doesn’t mean ETH will lose value—but it changes how we assess its long-term economics.”
Long-Term Security Concerns Emerge
Byoungjoon Kim, researcher at DeSpread Research, cautions that persistent supply growth could eventually impact network security.
“In a Proof-of-Stake (PoS) system like Ethereum, security is directly tied to the value and distribution of staked ETH,” Kim explains. “If inflationary pressure suppresses price appreciation or discourages staking, it could weaken decentralization and resilience over time.”
While current staking participation remains strong—with over 30 million ETH staked—Kim argues that subtle shifts in investor psychology matter. If ETH transitions from a “digital gold” narrative to a more utility-driven asset, institutional demand dynamics may shift accordingly.
Additionally, competition from other ecosystems like Solana has intensified. Kim notes that meme coin booms and high-performance chains have drawn liquidity and developer attention away from Ethereum, especially among retail users chasing short-term gains.
Ethereum Increases Gas Limit to Boost Scalability
In a related move, the Ethereum community recently agreed to raise the network’s gas limit from 30 million to 36 million units per block—the first such adjustment since 2021.
This change allows validators to include more transactions per block, improving throughput during peak demand periods. It reflects Ethereum’s ongoing commitment to scalability without compromising decentralization.
However, some critics argue that increasing block size could favor larger nodes and centralize infrastructure over time. The debate underscores a recurring theme in blockchain development: balancing performance with permissionless access.
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Frequently Asked Questions (FAQ)
Q: What caused Ethereum’s supply to start increasing again?
A: The Dencun upgrade introduced blob transactions with lower fees that don’t burn ETH at the same rate as regular transactions. As Layer 2 usage grew, fewer fees were destroyed, leading to net positive issuance.
Q: Is Ethereum still deflationary?
A: No. Since Dencun’s activation in early 2024, Ethereum has shifted into a mildly inflationary state due to reduced fee burning and continued staking rewards.
Q: Does this mean ETH will lose value?
A: Not necessarily. Inflation alone doesn’t determine price. Demand factors—like adoption, staking yield, DeFi usage, and macroeconomic conditions—play equally important roles.
Q: How does the gas limit increase affect users?
A: A higher gas limit allows more transactions per block, reducing congestion and potentially lowering fees during busy periods. It enhances short-term scalability.
Q: Could future upgrades reverse the inflation trend?
A: Yes. Future EIPs could modify fee structures or reintroduce stronger deflationary mechanisms if community consensus supports it. However, current priorities favor scalability and usability.
Q: What is the ‘ultrasound money’ narrative?
A: It’s a theory that ETH will become extremely scarce over time due to burning exceeding issuance—making it more deflationary than Bitcoin. Recent trends challenge this outlook.
Core Keywords
- Ethereum supply
- Dencun upgrade
- ETH inflation
- Ultrasound money
- Blob transactions
- Pectra upgrade
- Gas limit increase
- Layer 2 scaling
Ethereum stands at a crossroads. Its ability to scale efficiently through innovations like blob transactions ensures continued relevance in a competitive landscape. Yet these gains come at a cost: the erosion of a once-prominent deflationary thesis.
As Pectra looms and scalability takes precedence, investors must recalibrate expectations. ETH may no longer be on a strict path to digital scarcity—but its role as the backbone of decentralized applications ensures it remains central to the crypto economy.
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