Ethereum Fusaka Upgrade Launches Today: Experts Anticipate Supply Shortage

The highly awaited Fusaka Upgrade for Ethereum is set to go live today, promising significant improvements to the network's overall capability. Analysts suggest that this crucial upgrade could lead to a notable supply shortage for ETH, which may elevate its price during a tough phase for the wider cryptocurrency market.

Key Takeaways

The Fusaka Upgrade introduces important enhancements, addressing Ethereum's longstanding challenges.
Layer 2 (L2) solutions will now incur fees that contribute directly to ETH burn, increasing scarcity.
Projections indicate a potential shift from slight inflation to a deflationary state for ETH post-upgrade.
Enhancements in transaction efficiency and block capacity are expected to drive more ETH transactions and burns.

Ethereum

Enhancements through Layer 2 Solutions

According to analysts at Bull Theory, the Fusaka Upgrade incorporates elements from previous updates—Osaka, Fulu, and PeerDAS. Its most crucial feature is the resolution of one of Ethereum's most significant hurdles. Layer 2 solutions have historically leveraged Ethereum's security while contributing minimal fees back to the network. Despite L2 solutions like Base, Arbitrum, Optimism, and zkSync generating millions in fees from users, Ethereum's recorded fees nearly dropped to zero when data was posted.

As a result, substantial L2 activity did not lead to a significant amount of ETH being burned, even with approximately 85% of Ethereum transactions now occurring on these Layer 2 solutions. The Fusaka Upgrade transforms this situation. A pivotal enhancement, EIP-7918, mandates that Layer 2 transactions pay real fees to Ethereum.

This modification guarantees that every L2 transaction contributes directly to ETH being burned, a change that was previously unpredictable. Analysts argue that this feature marks one of the most important value shifts since the implementation of EIP-1559.

Future Projections After Fusaka

The upgrade is also anticipated to expand ETH burn beyond just Layer 1 (L1) transactions to include all L2 activities. Historically, most ETH burn has come from mainnet transactions, resulting in slight inflation in 2024–2025 due to cheaper Layer 2 transactions leading to reduced ETH burn while staking continued to create new ETH.

Following the Fusaka Upgrade, every L2 blob will incur a minimum fee that will be burned. As Layer 2 adoption rises, the rate at which ETH is burned will also increase, heightening ETH's scarcity. This development positions Ethereum to potentially revert to a deflationary state for the first time in several years. Currently, about 620,000 new tokens are issued yearly for stakers while approximately 350,000 tokens are burned, creating slight net inflation.

However, projections indicate that additional burns from L2 activity could contribute an extra 200,000 to 400,000 ETH annually. Combined with current burn rates, this could result in over 600,000 ETH total, leading to a net neutral or slightly deflationary position for ETH. More optimistic estimates suggest that if L2 use expands and blob demand grows, burn rates could leap to between 900,000 and 1.2 million ETH yearly, leading to a supply decrease of 200,000 to 300,000 ETH each year.

A Monetary Transformation for Ethereum?

Another significant feature of the Fusaka upgrade is PeerDAS, which boosts Layer 2 expansion by reducing bandwidth requirements by 85%. This efficiency change enables L2 solutions to publish more blobs at lower costs, resulting in higher fees and more ETH burned.

The upgrade also raises the block gas limit from 36 million to 60 million, allowing a greater number of transactions to fit within a single block. This increase facilitates more transactions, leading to higher fees collected and a corresponding rise in ETH burning.

Moreover, lower transaction fees—related to swaps, bridges, on-chain gaming, and social applications—are likely to drive higher usage, generating more transactions and thus increased ETH burns.

Ultimately, analysts believe that the Fusaka Upgrade signifies a major monetary transformation for Ethereum, highlighting that the network is not only expanding but also beginning to effectively monetize that expansion.

Ethereum The daily chart indicates ETH’s price recovery above the key $3,000 mark. Source: ETHUSDT on TradingView.com

Featured image from DALL-E, chart from TradingView.com