Ethereum’s Supply Nearly Crosses Pre-Merge Levels Despite Increased Blob Usage

Key Takeaways

• Ethereum’s supply has nearly crossed its pre-merge levels.
• The ETH supply has become inflationary since the Dencun upgrade.
• Is it possible for the ETH supply to become deflationary again?

Ethereum’s Dencun upgrade dramatically reduced transaction fees on all its Layer-2 solutions. This unintendedly reduced the amount of ETH burned since Layer-2s generated lower burn rates during transactions.

At the time of the Dencun upgrade, the supply of ETH had fallen by 460,000 since the merge. The supply has become inflationary since, and as of the time of writing, the ETH supply is nearly at the same level as it was before the merge in September 2022.  If the same rate holds, the supply will surpass pre0merge levels in less than two weeks.

With that in mind, let’s analyze the Layer-2 ecosystem, focusing on blob usage, to determine whether the ETH supply is at risk of becoming deflationary again.

Layer-2 Activity Grows

After the Dencun upgrade, the majority of transactions moved to Layer-2s. This is illustrated when charting the transactions as a proportion of each other. At the time of the Dencun upgrade (white circle), 31% of transactions were on Ethereum, while 69% were in Layer 2s.

As of January 2015, only 10% of transactions are in Ethereum while the other 90% are in Layer-2s.

The growth in Layer-2 activity is led by Base, which now has over 60% of the total Layer-2 transactions.  Base did nearly 290 million transactions  in December 2024 alone, a new all-time high.

Interestingly, despite the discrepancy in transactions, 80% of the transaction fees  are still paid by the relatively few Ethereum transactions. From Layer-2s, Base leads the pack by paying 10% of the total transaction fees.

Despite the massive growth in activity, the layer-2 fees paid on the main chain are minuscule compared to any other period in time. Arbitrum and Base still pay a relatively significant portion of fees, but other Layer-2s barely contribute anything.

So, the increase in transactions from the lower costs is insufficient t to offset the decrease in fees since there are lower costs.

Blob Usage

Blobs were introduced  during the Dencun Upgrade. They are large packets of data that are included in Ethereum blocks but are only stored for 18 days. Hence, they do not occupy space permanently in the blockchain. Blobs hold 128kb of data , and multiple blobs can be included in a single block.

Since October, blobs have been operating at the target of three per block. The limit is now 6 blobs per block, which would make them more expensive since fees spike when the target is crossed (black circles).

So far, all of the Layer-2s except Scroll pay more blob fees than gas fees.

Blob fees have burned over 1,200 ETH in the past 30 days. This puts Blobs fourth place behind Uniswap, ETH transfers, and Tethers. So, Uniswap alone burns more ETH than all Layer-2s combined.

This could be especially problematic for Ethereum once Uniswap completely moves to Unichain.

The current transaction count of all Layer 2s is roughly 19 million  and has been at a similar level since August. If the transaction count increases, the blobs per block might cross three since they have been at this level since August, noting a correlation with the transaction count.

This could make blobs much more expensive, making the ETH supply deflationary again. Therefore, the total transaction count has to increase considerably for Blobs to make the supply deflationary.

Ethereum’s Inflationary Supply

Ethereum’s supply has become inflationary since the Dencun upgrade in March 2023, and it will likely soon cross its pre-merge levels. Layer-2 transactions have to increase significantly for blobs to move above their target and become more expensive, increasing the rent paid to Layer-1. Unless this happens, the Ethereum supply will likely remain inflationary.