What Is Ultrasound Money? The Ethereum Scarcity Thesis
Ultrasound money is Ethereum's thesis that ETH supply can shrink as the network is used. Here's how it works, why it matters, and where it stands in the future.
Key takeaways
- Ultrasound money is the Ethereum-native idea that a currency whose supply can shrink with usage is monetarily stronger than one with a fixed cap alone.
- It is built on two mechanisms working together: EIP-1559 burns part of every transaction fee, and the Merge cut new issuance by approximately 88% by moving Ethereum to Proof-of-Stake.
- Deflation is conditional, not automatic. Whether ETH supply shrinks or grows in any period depends on whether burn exceeds issuance, which depends on network activity.
- The structural point is that Ethereum ties scarcity directly to utility. ETH becomes scarcer when the network is valued enough to be used.
Ultrasound money is a term from the Ethereum community describing a monetary asset whose supply can shrink over time, instead of merely being capped. The thesis rests on a simple idea: if Bitcoin's fixed supply makes it "sound money," then ETH – whose supply can fall when network activity is high – could be even better.
That description sounds clean, but the reality of ETH's supply in 2026 is messier. To understand why, it helps to start with what the term actually means.
What Does “Ultrasound Money” Mean?
| Quick answer: Ultrasound money refers to a digital currency whose total supply can decrease over time through a built-in burn mechanism, making it scarcer the more it is used. It is an Ethereum-native concept that builds on and tries to one-up Bitcoin's "sound money" branding. |
The term began as a meme. Vitalik Buterin first mentioned it as a joke in August 2020, and Ethereum researcher Justin Drake popularised it on Twitter in September 2020. The bat-and-sound emoji combo used by ETH advocates is a visual nod to bat ultrasounds.
The bat-and-sound emoji combo used by ETH advocates is a visual nod to bat ultrasounds.
Behind the meme is a specific claim about supply mechanics:
- Bitcoin is described as "sound" because no more than 21 million BTC will ever exist.
- Ethereum proposes a different model: a currency whose supply can decline when the network is busy.
In this framing, scarcity becomes tied to network utility rather than a fixed cap.
How Ethereum Became Ultrasound Money
| Quick answer: Ethereum did not start out as a deflationary asset. It became one, at least temporarily, through two protocol upgrades working together: EIP-1559 (which burns part of every transaction fee) and The Merge (which reduced how much new ETH is issued). |
EIP-1559 Introduced ETH Burning
EIP-1559 is the upgrade that introduced automatic burning of transaction fees, removing ETH permanently from circulation each time the network is used. It went live on August 5, 2021, as part of the London Hard Fork.
How fees changed:
Before EIP-1559 | After EIP-1559 |
| Entire fee → miners | Split into base fee + priority fee |
| No burn mechanism | Base fee is burned (destroyed) |
| Auction-style bidding | Algorithmic fee pricing |
The base fee is set algorithmically by the network and permanently burned. A small priority fee (tip) goes to validators. Burned ETH is sent to an address with no private key, making the destruction irreversible.
As of February 2026, approximately 4.6 million ETH have been burned since EIP-1559 launched in August 2021, according to Glassnode data. Major contributors to the burn include Tether (USDT) transfers, which alone account for over 210,000 ETH destroyed.
The Merge Reduced ETH Issuance
The Merge is the September 15, 2022 upgrade that switched Ethereum from Proof-of-Work to Proof-of-Stake, cutting daily ETH issuance by roughly 88%.
Issuance before vs after The Merge:
- Pre-Merge (PoW): approximately 13,000 ETH issued per day to miners.
- Post-Merge (PoS): approximately 1,700 ETH issued per day to stakers.
- Reduction: approximately 88%.
The Ethereum community refers to this as the "triple halvening" – the issuance drop was roughly equivalent in scale to three Bitcoin halvings happening at once.
Combined with the EIP-1559 burn, this created the conditions for net-negative supply growth. Fifty-five days after the Merge, Ethereum reached "zero net issuance" for the first time, briefly becoming deflationary.
The Net Issuance Formula
Whether Ethereum is deflationary or inflationary at any moment comes down to a single equation:
Net supply change = New issuance (to validators) − Fee burn (from transactions)
The outcome flips depending on which side is larger:
- Burn > Issuance → ETH supply shrinks (deflationary)
- Issuance > Burn → ETH supply grows (inflationary)
The variable that matters most is the base fee, which depends on network congestion. High activity means high gas fees and more ETH burned. Quiet periods mean low fees and less burn.
This is why the thesis is described as conditional rather than guaranteed. The mechanism makes deflation possible during periods of strong demand.
Ultrasound Money vs Hard Money: Ethereum vs Bitcoin
Bitcoin offers fixed scarcity by design. Ethereum offers elastic scarcity that responds to network demand. Both inflate slightly in 2026, but through different mechanisms.
Attribute | Sound Money (BTC) | Ultrasound Money (ETH) |
| Supply cap | Fixed at 21 million | No hard cap, dynamic |
| Issuance schedule | Predictable, halvings every ~4 years | Variable, tied to staking and burn |
| Can supply shrink? | No | Yes, during high activity |
| Consensus | Proof-of-Work | Proof-of-Stake |
| 2026 annual inflation | ~0.85% | ~0.23% |
Since Ethereum's shift to PoS in 2022, ETH supply has grown at an annualized rate of about 0.23%, though lower than Bitcoin's current annual inflation rate of 0.85%. Both assets are technically inflating in 2026 – Ethereum at a lower rate.
The structural differences:
- Bitcoin: supply is locked in by protocol rules; the schedule is predictable indefinitely. Bitcoin holders accept long-term opportunity cost (lower utility, no yield from the base layer) in exchange for certainty about supply.
- Ethereum: supply adjusts based on actual usage; the schedule is responsive but uncertain. Ethereum holders accept policy risk and demand risk (burn depends on network usage) in exchange for the possibility of supply contraction plus native staking yield of roughly 3% annually.
One model is mathematically certain. The other is dynamic and depends on real-world demand.
Does ETH Always Stay Deflationary?
| Quick answer: No. ETH is only deflationary when fee burn outpaces new issuance, which depends entirely on network activity. As of 2026, ETH is slightly inflationary. |
The turning point was the Dencun upgrade in March 2024. Dencun introduced "blobs" – a cheaper way for Layer-2 rollups to post data to Ethereum.
What happened to burn rates after Dencun:
- Blob space was oversupplied, with blob fees lingering near zero for an extended period.
- Daily burn rate collapsed from thousands of ETH per day to as low as 50–70 ETH per day in Q1 2025.
- With approximately 1,700 ETH still issued daily and only 50–70 burned, net issuance turned positive.
Deflation is a state, not a permanent property. During mainnet demand spikes, daily burn can still surge into the hundreds or thousands of ETH and flip the network back to deflation temporarily.
The Fusaka upgrade in December 2025 addressed this directly. Core developers introduced EIP-7918, the "Blob Base Fee Bound."
How it works:
- Establishes a minimum price floor for blob transactions.
- Even during low L2 demand, rollups now pay a minimum fee proportional to the execution base fee.
→ The effect: a guaranteed minimum stream of ETH burned even during quiet periods, preventing the burn rate from collapsing to near-zero again.
Why Ultrasound Money Matters for ETH Investors
| Quick answer: For investors, the thesis matters because it reframes how ETH is valued — not just as a utility token for gas, but as a monetary asset whose supply is tied to actual economic usage. |
Three implications stand out.
1. Supply elasticity creates a feedback loop between demand and scarcity.
The more the network is used, the more ETH is removed from circulation. In traditional finance, growth and inflation usually move together. With ETH, growth and deflation can move together when burn outpaces issuance.
2. Staking adds another layer of supply compression.
Approximately 36–37 million ETH (more than 30% of total supply) is locked in staking contracts as of April 2026. This ETH is technically part of circulating supply but is not freely tradeable.
The practical "float" available on exchanges is smaller than the headline supply suggests.
3. The comparison with pre-Merge Ethereum is more telling than the comparison with Bitcoin.
Era | ETH Annual Inflation |
| Pre-EIP-1559 (before Aug 2021) | ~4–5%, no burn at all |
| Post-Merge, pre-Dencun (2022–2024) | Net deflationary at times |
| 2026 (post-Dencun, post-Fusaka) | ~0.23%, fluctuating |
The current situation – mild inflation with a mechanism that flips to deflation during high activity, plus 30% of supply locked in yield-bearing staking – differs from every previous version of Ethereum's monetary policy.
Supply mechanics are only one input. Demand for ETH, from DeFi, RWA tokenization, L2 settlement fees, and broader adoption, is the other half of the equation, and the more important factor for price.
Criticisms of the Ultrasound Money Thesis
Quick answer: The main criticisms of the ultrasound money thesis are that:
|
These objections come from both Bitcoin advocates and voices within the Ethereum research community itself. Four come up most often.
No fixed supply cap
Unlike Bitcoin, Ethereum has no hard ceiling on its total supply.
- ETH supply can theoretically grow indefinitely if burn falls behind issuance.
- This has been the case since 2024.
- Ether has lagged behind BTC because investors trust Bitcoin's fixed supply schedule.
For investors who treat scarcity as the central monetary virtue, "supply can shrink, depending on usage" is a different promise than "supply is mathematically capped."
Monetary policy changed before
Ethereum's monetary policy is not immutable in the way Bitcoin's is. The network has changed its issuance schedule multiple times:
- EIP-1559 (2021): added the burn mechanism
- The Merge (2022): reduced issuance by 88%
- Fusaka's EIP-7918 (2025): added blob fee floor
Critics argue this introduces unpredictability and a form of centralization: monetary policy can be adjusted by the development community, which is fundamentally different from a fixed protocol rule.
A sharper critique from the ETF market: "Ethereum abandoned its 'ultrasound money' narrative the moment it became inconvenient."
Governance flexibility is viewed differently depending on perspective – a feature for some, a drawback for others.
Burn depends on continued network usage
The ultrasound money thesis is conditional. It relies on Ethereum's mainnet activity growing enough to push burn rates back above issuance.
The burn mechanism only functions if the network continues to be used.
- If a competing chain captures DeFi market share, burn slows.
- If usage migrates entirely to L2s with minimal settlement costs, the same issue applies.
ETH retains its ultrasound property only as long as Ethereum remains the dominant settlement layer.
Layer 2 scaling may reduce L1 burn
This is the criticism that played out after Dencun. Ethereum's scaling strategy is built around pushing transactions onto L2 rollups that post compressed data back to L1. The result was a sharp drop in burn rates.
The core tension:
If most users are transacting on L2s at near-zero fees, far less ETH is being burned per unit of economic activity on the network.
Fusaka's blob fee floor is designed to address this. The underlying tension remains: a scaled, efficient Ethereum may be less deflationary than a congested, expensive one.
A Closing Observation A structural paradox sits at the centre of the ultrasound money thesis. The same upgrades that made Ethereum more useful also weakened the scarcity narrative. Ethereum's success at scaling, in supply terms, works against its own deflationary story. Whether this design is viewed as elegant or fragile depends largely on what the observer expects money to do. |
Sources and Further Reading
FAQ About Ultrasound Money
The most-used tracker is ultrasound.money, which displays live burn rates, net issuance, and supply changes. Etherscan's burn chart and beaconcha.in/burn also provide raw on-chain burn data updated in real time.
