Ethereum's Supply Nears Pre-Merge Levels Despite Rising Blob Usage

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Ethereum’s journey from proof-of-work to proof-of-stake marked a turning point in its economic model—ushering in a deflationary era that many believed would support long-term value appreciation. However, recent developments following the Dencun upgrade have shifted the narrative. The network’s supply is now nearly back to pre-Merge levels and has entered an inflationary phase, raising critical questions about its future monetary policy and sustainability.

This article explores the evolving dynamics behind Ethereum’s supply trends, focusing on Layer-2 adoption, blob transaction economics, and the potential for ETH to return to deflationary status.

The Shift from Deflation to Inflation

At the time of Ethereum’s Merge in September 2022, the network experienced a significant reduction in circulating supply—over 460,000 ETH had been burned due to EIP-1559 fee mechanics. This deflationary pressure was a key selling point for investors and developers alike.

However, the Dencun upgrade in March 2025 altered this trajectory. By drastically reducing transaction costs on Layer-2 networks through proto-danksharding and blob transactions, Ethereum unintentionally decreased the amount of ETH burned per transaction. With lower fees come lower burn rates, tipping the balance from deflationary to inflationary issuance.

As of early 2025, Ethereum’s total supply stands just below its pre-Merge level. If current trends persist, it is projected to surpass that threshold within weeks—marking a symbolic reversal of one of the most celebrated outcomes of the Merge.

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Layer-2 Dominance Reshapes Transaction Landscape

One of the most visible impacts of the Dencun upgrade is the migration of transaction volume from Layer-1 to Layer-2 solutions.

Prior to Dencun, approximately 31% of all Ethereum-related transactions occurred directly on the mainnet, with 69% taking place across various Layer-2 rollups. Today, that ratio has flipped dramatically: only about 10% of transactions occur on Layer-1, while 90% are now processed on Layer-2s such as Base, Arbitrum, Optimism, and zkSync.

Base Leads the Charge

Among Layer-2 platforms, Base has emerged as the dominant player. In December 2024 alone, it processed nearly 290 million transactions, setting a new record for activity on any Ethereum scaling solution. Its integration with Coinbase has fueled widespread retail adoption, particularly in meme coin trading and NFT minting.

Despite this surge in volume, the economic contribution back to Ethereum remains limited. While Layer-2s handle the vast majority of transactions, over 80% of transaction fees are still paid by Layer-1 users. Even among Layer-2s, only Base contributes meaningfully—accounting for roughly 10% of total network fee revenue.

This imbalance highlights a growing concern: high transaction throughput does not necessarily translate into high fee burn. Lower costs attract usage, but they also reduce the amount of ETH removed from circulation via EIP-1559.

Blob Transactions: A New Source of Burn

The introduction of blobs during the Dencun upgrade was designed to make data availability cheaper for rollups. Each blob carries up to 128 KB of off-chain data and is stored temporarily—only for 18 days—before being pruned from consensus nodes.

Each block can include up to six blobs, but the protocol targets three per block to maintain equilibrium. When usage exceeds this target, blob fees rise exponentially due to a dynamic pricing mechanism similar to EIP-1559.

Since October 2024, blob usage has consistently hovered around the three-blob target. While this keeps fees affordable, it limits the amount of ETH burned through this channel. Over the past 30 days, blob-related burns have totaled more than 1,200 ETH, placing them fourth among burn sources—behind Uniswap trades, direct ETH transfers, and USDT transactions.

Notably, Uniswap alone burns more ETH than all Layer-2 networks combined, underscoring how concentrated fee generation remains on Layer-1.

Could Blobs Drive Deflation Again?

For Ethereum to re-enter deflationary territory, blob usage must consistently exceed the target threshold. This would drive up blob fees—and consequently, burn rates—enough to offset new ETH issuance from staking rewards.

Currently, total Layer-2 transaction volume sits at around 19 million per day, a level maintained since mid-2024. Any significant uptick in activity could push blob demand beyond capacity, triggering higher fees.

If platforms like Uniswap fully migrate to Unichain—a modular blockchain stack built using OP Stack—their transaction load will shift off Layer-1 entirely. While beneficial for scalability, this could further reduce Layer-1 fee burns unless blob fees compensate.

Thus, the path back to deflation hinges on sustained growth in Layer-2 transaction density, not just volume. More transactions per blob or increased blobs per block are necessary conditions for meaningful economic impact.

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Frequently Asked Questions (FAQ)

Is Ethereum currently inflationary or deflationary?

As of early 2025, Ethereum is in an inflationary phase. New ETH issuance from staking rewards exceeds the amount being burned through transaction fees and blobs.

Why did the Dencun upgrade make Ethereum inflationary?

The Dencun upgrade reduced transaction costs on Layer-2s via blob-carrying transactions. Lower fees mean less ETH is burned under EIP-1559, decreasing deflationary pressure.

Can Ethereum become deflationary again?

Yes—but only if blob usage exceeds its target consistently or if high-value transactions return to Layer-1. Significant increases in Layer-2 activity could drive up blob fees and associated burns.

What are blobs and how do they affect ETH supply?

Blobs are temporary data containers used by Layer-2s to post transaction data cheaply. Fees paid for blobs are burned, contributing to deflation when usage spikes above protocol targets.

Which network burns the most ETH?

Uniswap remains the largest source of ETH burns, surpassing even all Layer-2 networks combined due to high-volume decentralized exchange activity on Layer-1.

Does high Layer-2 usage benefit Ethereum’s economy?

Indirectly. While L2s improve scalability and user experience, their low fee contributions mean they currently add little to ETH’s scarcity unless blob usage intensifies.

Outlook: Can Scarcity Be Restored?

Ethereum’s transition to an inflationary supply model doesn’t signal failure—it reflects success in scaling. The network now supports vastly more users and applications than before Dencun. However, this scalability comes at a cost: reduced monetary tightness.

To restore deflationary mechanics without sacrificing affordability, Ethereum depends on intensified usage patterns, not just broader adoption. More transactions per blob, higher blob utilization, or renewed activity on Layer-1 (especially from major DeFi protocols) could tip the scales again.

Until then, Ethereum’s supply trend will likely continue its upward climb—approaching and potentially exceeding pre-Merge levels in the near term.

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All information provided is for educational and informational purposes only. It does not constitute financial or investment advice. Always conduct your own research and consult with a qualified advisor before making any decisions.