Ethereum’s Broken Promise: Did Layer 2s Break the Money Thesis? | Daily Crypto Deep Dive

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Welcome back to the Daily Crypto Deep Dive. Ethereum appears to have achieved something that almost every blockchain has spent years trying to accomplish. It has become dramatically cheaper to use. Its wider ecosystem can process tens of millions of transactions every day. Major companies are building on top of it. Billions of dollars are secured through its layer two networks, and its technology remains at the center of decentralized finance, stable coins and tokenized assets. But there is a problem. The fees being paid directly to the base layer have collapsed. The amount of the native asset being destroyed through transaction fees has fallen. New coins are being created faster than old ones are being removed. And much of the economic activity now takes place on separate networks that can collect their own revenue. In other words, Ethereum may have successfully solved its scaling problem while weakening one of its strongest investment narratives.
The question we are investigating today is simple. Did Layer 2s save the network? Or did they accidentally break its money?
Before we begin, remember that you can receive 20 XRP by creating and using an account through our Kraken affiliate link. Once you have signed up and completed the requirements, message the show so we can confirm your entry. For years, one of the biggest criticisms of Ethereum was that it was simply too expensive. When demand increased, transaction fees could become ridiculous. Sending a token, trading through a decentralized exchange, or buying a non-fungible token could cost tens or even hundreds of dollars. That might be acceptable for a financial institution moving millions, but it was completely unsuitable for ordinary users making small payments or experimenting with new applications. The network had security, liquidity and developers, but it lacked affordable capacity. Its eventual answer was not to force every transaction through one enormous blockchain. Instead, much of the activity would be moved on to Layer 2 networks. Platforms such as Base, Arbitrum and Optimism process large numbers of transactions away from the main chain. They then package information together and post the necessary data back to the Base layer. The easiest way to imagine this is to think about a courthouse. The main network is the final court where ownership and settlement are ultimately recognized. Layer 2s handle much of the everyday paperwork outside the courtroom, combine thousands of individual actions and then submit a compressed record for final settlement. That allows considerably more activity to take place without forcing every user to compete for limited space inside each main net block. The major breakthrough arrived with the Denken upgrade and the introduction of Blobs. Before Blobs, Layer 2 networks often had to post their transaction information using a more expensive form of permanent data storage. Blobs created a separate temporary data market designed specifically for rollups. This reduced the cost of posting data and made transactions on secondary networks incredibly cheap. The result, from a technology and user experience perspective, has been extremely successful.
Recent ecosystem data shows approximately 30 million transactions being processed across the tracked chains in a single day. Base alone accounted for more than 7 million of them.
Research published in June found that median mainnet fees had fallen from more than $2 to less than 2 cents between January 2024 and March 2026
Median Layer 2 fees fell by more than 95% during the same period.
That is an extraordinary improvement. The problem is that fees do not disappear without consequences. In 2021, Ethereum introduced a mechanism called EIP 1559
Under that system, the base portion of transaction fees is permanently destroyed. When the network is extremely busy and fees are high, a large number of coins can be removed from circulation. If more are destroyed than created through validator rewards, the total supply decreases.
This produced the famous ultrasound money narrative. Bitcoin had a fixed maximum supply.
Ethereum supporters argued that their asset could potentially go one step further by becoming deflationary, with the circulating supply gradually shrinking as usage increased. Following the move to proof of stake, new issuance also dropped considerably. For a time, the combination looked extremely powerful. Low issuance plus growing adoption plus a fee-burning mechanism created the possibility that increasing network activity would produce increasing scarcity. But that equation relied on one crucial assumption. Activity had to generate meaningful fees on the base layer. Once transactions moved on to cheaper secondary networks and blobs reduced their data costs, the amount being paid to the main chain dropped sharply. At the time of recording, one recent 7-day reading showed that approximately 20,000 new coins had been issued while fewer than 200 had been destroyed. Those numbers change constantly, but the imbalance demonstrates what happens when transaction fees approach zero.
The network continues paying validators to secure the blockchain, but the fee burn is no longer large enough to offset those rewards. The supply therefore grows. This does not mean the inflation rate is remotely comparable to badly managed national currencies. It remains relatively low and transparent. But it does weaken the claim that adoption will automatically make the assets scarcer. Even more importantly, layer 2s can collect fees from their own users. A person might conduct hundreds of transactions on base without interacting directly with the main chain. Base collects the user fees, operates the sequencer and periodically pays the underlying network to publish information and settle activity. If users pay the secondary network $1 million, while that network only pays the base layer $50,000, most of the immediate revenue remains with the layer 2