Before Ethereum’s recent upgrade, Layer 2 (L2) networks were major buyers of ETH. They used it for transactions and token burns, which reduced Ethereum’s overall supply and strengthened the network. This system supported projects like Celestia and Avail, helping Ethereum maintain deflationary appeal. But now things have changed.
What exactly happened to Ethereum?
— H.E. Justin Sun 🍌 (@justinsuntron) March 12, 2025
Justin Sun Ethereum Criticism: A Major Upgrade Shifted the Market For Ethereum
After the upgrade, things changed. Now, L2s are selling more ETH than they buy. This means Ethereum’s supply is increasing instead of shrinking, making it less attractive as a deflationary asset. Investors are concerned because this shift weakens the network’s stability.
It’s been death every since the blob upgrade. Before the blob upgrade, the L2’s were huge buyers of eth through token burn. Plus it supported coins like celestia and avail. Since the blob upgrade, the l2’s net sell eth. The eth supply is going up. It was going down before.
— Solanasaurusrex.sol (@Christo86383094) March 12, 2025
No clear vision.
Either PoW for sovereignty and decentralization OR PoS with very low fees and scalability.
But right now they have a foot in both camps which makes the protocol too costly compared to other L2s like Starknet and not very decentralized like it was with PoW.
— Tom Megati (@TomMegati) March 12, 2025
- Should it focus on being highly decentralized and sovereign?
- Or should it prioritize lower fees and better scalability?
Vitalik pic.twitter.com/wDvXoRKfeI
— Robin Nakamoto (@RobinNakamoto) March 12, 2025
Key Takeaways
- Ethereum’s Upgrade Changed the Market – L2s are now selling more ETH than they buy, increasing supply and weakening its deflationary appeal.
- Scalability and Fees Remain an Issue – Despite PoS, Ethereum still struggles with high costs and slow transactions, while L2s like Starknet offer better alternatives.
- Decentralization Is Weaker – Moving from PoW to PoS reduced Ethereum’s independence, leaving it without a clear direction.
- Ethereum Needs a Clear Strategy – It must choose between decentralization and scalability to remain competitive.
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