Original title: "L2 Value Feedback Ability Debate: Can ETH Reverse the Inflation Trend?"

Original author: Azuma, Odaily Planet Daily

Ethereum (ETH) has been at the forefront of market discussions recently.

From Vitalik's remarks on DeFi, to his personal selling actions, and the many criticisms surrounding the entire Ethereum Foundation, ETH seems to be facing the most negative market sentiment since The DAO incident.

In the following article, we will not focus on these relatively subjective topics, but hope to discuss another objective digital issue that has been put on the table-Since the Cancun upgrade, ETH's long-term deflationary trend since the Merge has been reversed. If the current trend continues, ETH's supply may return to the level of the Merge two years ago within a few months and continue to inflate.

In the view of some market analysts, ETH’s recent inflation trend is the root cause of the token’s sluggish performance - it has encountered a significant increase in supply without a significant change in demand, and the imbalance between supply and demand has led to a decline.

In recent days, many leading players in the Ethereum ecosystem (including researchers, project founders, VC representatives, etc.) have had heated discussions on this issue and have formed distinct opposing views.

Premise of discussion

Before understanding this debate, we need to turn the clock back to March this year.

On March 13, Ethereum officially activated the Dencun hard fork upgrade (hereinafter referred to as "Cancun upgrade") at the Beacon chain slot height 8626176. The focus of this upgrade is EIP-4844, which will add an additional data space Blob to the Ethereum block, specifically for processing L2-related transactions.

· For this part, please refer to 《Cancun upgrade is finally here, which targets will benefit? 》.

Looking back, the Cancun upgrade performed quite well in reducing fees. With the introduction of Blob, the transaction fees of the L2 network have been significantly reduced, and as L2-related transactions that were "squeezed" in the calldate with ordinary transactions were moved to Blob, the transaction fees of the Ethereum main network itself also declined to a certain extent. This was originally a "happy" thing, but as time went on, some observers found that the supply trend of ETH had changed - from deflation to inflation.

This is because Ethereum has introduced a supply adjustment mechanism of "directly destroying part of the transaction fees" since the implementation of EIP-1559 three years ago, in order to permanently reduce the ETH in circulation and reduce the inflation level of Ethereum.

ultrasound.money data shows that in early April this year (shortly after the activation of the Cancun upgrade), the net deflation of ETH (with Merge as the reference standard) once reached a peak of about 457,000, but since the introduction of Blob significantly reduced the transaction fees of L2 and L1, the number of ETH destroyed has dropped significantly since then, and the net deflation has shrunk to about 200,000 - this means that the supply of ETH has increased by more than 250,000 since the upgrade.

As of the time of posting, Based on the data from the past 30 days, ETH may issue 944,000 more in a year, but only 151,000 can be destroyed. After comprehensive calculation, ETH is already in an inflationary state, and the implemented inflation rate is 0.66%.

Combining the above data, it can be intuitively concluded that at least in the past six months, the emergence of Blob has reversed the long-term deflationary trend of ETH. Based on this background, the market discussion focuses on whether this trend will continue? Does the DA service (Blob) have a value-feeding effect on ETH? Can the growth of L2 transactions drive the increase in Blob demand, and then push ETH back to a deflationary state?

Affirmative point of view: Waiting for the turning point

In this debate, Ethereum ecosystem investor Ryan Berckmans can be regarded as the representative of the affirmative side. His core point of view is: The current utilization rate of Blob is not saturated, but with the increase in L2 demand, after Blob is saturated, the market will bid for limited Blob space, thereby increasing the proportion of Blob fees and the amount of destruction, pushing ETH back to deflation.

In a recent X article, Ryan mentioned that the utilization rate of Blob has stabilized at about 80% in the past few months, and each block will purchase about 2.4 Blobs (up to 3); at the same time, L2 itself is constantly improving the efficiency of Blob utilization.

Therefore, Ryan believes that although the demand for Blob has not increased significantly in absolute numbers (the utilization rate remains at around 80%), this does not necessarily represent the real situation, because the growth may be offset by the ongoing efficiency optimization of L2. From the results presented on the L2 beat data website, the demand on L2 has also maintained a good growth trend.

Based on this background, when the demand for L2 continues to grow and the utilization rate of Blob increases further, the limited supply of Blob will cause L2 to start bidding, which is conducive to promoting the growth of fee income on the Ethereum mainnet. In the long run, the fee income from DA (i.e., L2's Blob bidding) may even exceed the regular L1 income (i.e., the ordinary transaction execution fee on Ethereum).

Counterpoint: Value cannot flow back to L1

In response to Ryan's point of view, Doug Colkitt, founder of DeFi protocol Ambient, gave a completely different view.

In the X article, Doug mentioned that many people hope to see the demand for Blob continue to grow and achieve supply saturation, thereby reversing the ETH inflation trend after the deployment of EIP-4844,However, this may not be achieved because the saturation of Blob is unlikely to lead to any substantial increase in the destruction of ETH.

Doug explained that most marginal transactions on L2 are "junk transactions" with low amounts. If Blob reaches saturation and enters bidding mode, the transaction costs on L2 will inevitably increase significantly, and marginal transactions are often extremely sensitive to prices,Therefore, the increase in Blob costs will indirectly lead to a sharp decrease in small transactions on L2.

Doug continued that unless there is a surge in the number of L2 transactions with relatively large amounts, the growth in demand for Blobs will not drive the growth of ETH destruction, and thus cannot change the current inflation trend. As it stands, Ethereum will not be able to accumulate value for the mainnet through DA (Blob fees) in the foreseeable future.

Compared to who is right or wrong, the discussion itself may be more important

Just as few people could predict the supply changes of ETH before the Cancun upgrade, no one can give a conclusion on whether the supply of ETH will usher in new changes after the saturation of Blob supply.

It should be emphasized that this article only focuses on the proposition of "whether the growth of Blob demand can trigger changes in ETH supply", and "whether the change in ETH supply is a factor affecting the price of the currency" is another dimension of proposition. From the perspective of project development, under the premise that Blob can provide effective expansion, there is also controversy over whether "low fee + inflation" and "high fee + deflation" are better or worse; in addition, after the saturation of Blob supply, the increase in operating costs and the changes within the L2 track also have many uncertainties.

Ryan speculated on some potential changes within the L2 track in his article:

· Will some L2s be forced to close down due to rising Blob costs?

· Will there be L2s turning to the validium solution?

· Will there be L2s turning to L3 and sharing Blob space with some other larger L2s?

· If Blob fees increase, how much is a reasonable increase?

· What is the expected proportion of fees?

· If Blobs are too expensive, will there be L2s returning to the calldata solution?

…These are all unresolved issues that have not been fully discussed.

Doug also mentioned in his article that his point of view is only to refute the fact that some people mentioned that "ETH will soon return to a deflationary state", but he doesn't know which situation is correct.

Some people believe that the Ethereum network should view L2 like a fast-growing startup, and view low-income DA services as a strategy to gain market share by losing money, and then consider profitability after the share grows; others believe that Ethereum may never need to make a profit through L2, but should reach more user groups through L2 and make ETH a monetary asset.

These topics require further collision of ideas. Perhaps compared to the result of "whether the growth in demand for Blobs can trigger changes in ETH supply", the discussion around the current status and trends itself is more valuable.

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