Ethereum is becoming increasingly deflationary due to network scaling on Layer 1 and Layer 2, rising ETH burn rates, and 30% of its supply locked in staking. As onchain activity grows and DeFi adoption expands, demand for ETH strengthens. These factors position Ethereum as a scarce, utility-driven digital asset with long-term potential as a store of value.
Ethereum, the world’s largest smart contract platform, continues to evolve beyond its original parameters. While much recent attention has centred on Ethereum’s price performance compared to Bitcoin and Solana, and the forthcoming Pectra upgrade, several critical developments are taking shape that significantly impact the network’s economic structure and long-term value.
Scaling on Layer 1 and Layer 2 Drives New Use Cases
A notable trend is the rapid advancement in scalability at both the Layer 1 (L1) and Layer 2 (L2) levels. This scaling results in lower transaction costs, which in turn opens the door for innovative onchain use cases that were previously impractical due to high fees. An emerging example is the rise of blockchain-based games that execute every action directly onchain. These applications efficiently utilise low-cost block space and demonstrate new economic activity that Ethereum’s ecosystem is increasingly capable of supporting.
This growing utility drives up the network’s usage and subsequently increases demand for ETH. As more users and developers deploy activity on L1 and L2, the resulting transactions contribute to Ethereum’s core deflationary mechanism—ETH burning through transaction fees under the EIP-1559 protocol.
Rising Burn Rate Enhances ETH Scarcity
The enhanced scalability has a direct effect on Ethereum’s deflationary properties. As the network processes more transactions at scale, the ETH burn rate increases. This burn rate is a key component of Ethereum’s monetary model, reducing the circulating supply and increasing the overall scarcity of ETH.
The threshold for triggering ETH burns falls as usage grows across diverse sectors, including gaming, finance, and digital identity. This trend bolsters Ethereum’s long-term scarcity profile, creating conditions that mirror deflationary dynamics typically associated with hard money assets.
Staking Locks Supply and Reinforces Demand
Another major factor contributing to ETH’s scarcity is the rise in network staking. Currently, 30% of the total ETH supply is locked in staking contracts. This staked ETH secures the Ethereum network and supports the validation of onchain activity across applications. By removing a significant portion of ETH from active circulation, staking naturally increases scarcity.
Furthermore, there is growing speculation around the potential approval of staked ETH exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC). Such a development would provide traditional investors with exposure to ETH while maintaining staking benefits. It could significantly broaden Ethereum’s investor base and deepen institutional demand.
DeFi and Credible Collateral
Alongside staking, decentralised finance (DeFi) continues to rely on ETH as a fundamental layer of collateral. ETH’s role as a credibly neutral and permissionless asset makes it the backbone of most DeFi protocols. As adoption of decentralised financial applications increases, demand for ETH as collateral is expected to grow.
The dual role of ETH—as both an asset for securing the network through staking and a core component of DeFi systems—reinforces its utility and economic value. It positions ETH not merely as a speculative asset, but as a vital unit of account within an expanding onchain economy.
Ethereum’s Path Toward a Digital Store of Value
As these deflationary forces—scaling, burning, staking, and increased DeFi usage—combine, Ethereum is solidifying its position as a long-term store of value. While Bitcoin relies on fixed supply and simplicity, Ethereum’s store-of-value proposition stems from its diverse and evolving utility base.
As the global economy transitions further into digital and decentralised systems, Ethereum’s foundational role in this infrastructure ensures sustained demand for ETH. This growing demand, combined with mechanisms that constrain supply, supports a monetary premium for ETH that is increasingly recognised by both retail and institutional participants.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
