Scaling at a Cost: Cheaper Transactions, Fading Deflation
Ethereum’s long-awaited scaling vision is materializing. Layer 2 rollups, particularly Arbitrum and Optimism, are rapidly reshaping the network’s transactional landscape by offering faster, cheaper activity compared to Ethereum mainnet. But while users are enjoying lower fees and higher throughput, Ethereum’s deflationary narrative is fading in the process.
The Rise of Rollups
Since 2021, Ethereum’s roadmap has emphasized rollups as the core scaling solution. These Layer 2s batch transactions off-chain and settle them to mainnet, inheriting Ethereum’s security while offering a much smoother user experience.
The data makes the trend clear:
- In 2021 and 2022, Ethereum mainnet dominated transaction share despite high gas fees.
- By 2023, Arbitrum and Optimism began to meaningfully capture market share, as developer activity, liquidity incentives, and application growth shifted to L2s.
- In 2024, activity accelerated after the EIP-4844 “blob fee” change, a major milestone in Ethereum’s proto-danksharding roadmap.
Today, Arbitrum and Optimism together process more daily transactions than Ethereum mainnet, a reversal that underscores just how central rollups have become.
The Impact of EIP-4844
Implemented in early 2024, EIP-4844 introduced “blob space”—a new data structure that made it drastically cheaper for rollups to publish transaction data to Ethereum. This had two immediate effects:
- Cheaper Transactions:
- The average fee on rollups fell sharply to just a few cents.
- This pricing opened the door for more high-frequency activity, from gaming to DeFi arbitrage, that was previously uneconomical.
- Reduced ETH Burn:
- Ethereum’s burn mechanism (introduced by EIP-1559) depends on base fees from mainnet gas usage.
- With more activity shifting to rollups—and blob space being priced lower than traditional calldata—ETH burn rates fell significantly.
- As a result, Ethereum’s post-Merge deflationary momentum has slowed, raising new questions about ETH’s supply dynamics.
Scaling vs. Store-of-Value Narrative
Ethereum’s community long touted the “ultra sound money” meme, emphasizing ETH’s deflationary mechanics as a key investment case. That thesis now faces headwinds:
- Deflationary ETH was conditional on persistently high base fees.
- Scaling solutions, while positive for users, naturally suppress those fees.
- The trade-off is clear: more affordable transactions, but weaker deflationary pressure.
This doesn’t undermine Ethereum’s broader value proposition as the settlement layer for a vast ecosystem of rollups, but it does shift the investment narrative from scarcity-driven supply reduction toward growth-driven demand for blockspace and staking yield.
Looking Ahead
Ethereum’s scaling roadmap is far from complete. Future upgrades—including full danksharding—will continue to expand blob capacity, driving costs lower and further entrenching rollups as the default environment for users and developers.
Key questions for investors and builders:
- Sustainability: Can rollups sustain user growth and liquidity concentration without fragmenting activity across too many ecosystems?
- Security Economics: With less ETH being burned, how does Ethereum’s long-term monetary policy balance staking rewards, issuance, and supply?
- Narrative Shift: Will ETH’s role be framed less as “digital ultrasound money” and more as digital infrastructure with predictable yields?
Conclusion
Ethereum has achieved a crucial milestone in usability: transactions are cheaper, faster, and more scalable than ever before thanks to Arbitrum, Optimism, and the EIP-4844 upgrade. But this progress comes at a cost—the fading of ETH’s deflationary narrative.
As the ecosystem matures, the focus may shift away from scarcity and toward utility, adoption, and the network’s role as the settlement layer for the decentralized economy. For investors, that means reassessing the thesis: Ethereum may no longer burn supply at a rapid pace, but it is building the foundation for mass adoption.
