When we talk about the price of Ethereum, we often simplify it to the interaction between supply and demand. Yet, while this statement holds true, most analyses tend to focus on the macro side — total supply, issuance rates, and burn mechanics — overlooking the complex microstructure of token demand that actually drives the market in real time.

Ethereum’s supply side has become relatively predictable. With issuance now stabilized and the burn mechanism providing a continuous counterbalance, changes in supply are slow and easy to model. Demand, on the other hand, is far more dynamic, heterogeneous, and fragmented across multiple layers of activity — from validators and DeFi participants to speculators, users, and institutional actors. Understanding who demands ETH, why, and how that demand evolves over time is essential to explain price formation beyond simplistic narratives.

This article marks the beginning of a weekly series that aims to measure and interpret the evolving demand for ETH. By taking a more micro-oriented perspective, the goal is to uncover how different actors — builders, investors, protocols, and retail participants — contribute to Ethereum’s economic activity and how their collective behavior translates into market demand for the token.

In this first installment, we’ll establish the basic premise: the price of ETH emerges in the market as the equilibrium between constant supply and variable demand. Since Ethereum’s issuance is currently steady, changes in price must be primarily understood through shifts in token demand — both in terms of buying pressure and selling activity — across these different groups of participants.

The most fundamental and organic form of demand for ETH comes from its use as the native asset required to execute smart contracts and transfer value on the network. Every operation on Ethereum — from a simple token transfer to a complex DeFi interaction — consumes computational resources, and the right to access those resources must be paid in ETH.

This type of demand can be measured both in ETH units (the total gas spent) and in USD terms, which reflect the economic value of the network’s activity. Ethereum, at its core, is a protocol that offers limited computational capacity — a constrained execution space — whose price is dynamically determined through a real-time auction mechanism known as the gas market.

As demand for block space increases, users compete by bidding higher gas fees to ensure inclusion in upcoming blocks. This competition drives up the USD-denominated demand for ETH, primarily for two reasons:

1. Network Capacity Growth: As the protocol gradually expands its throughput (via scaling solutions and layer-2 integrations), it enables more transactions and smart contracts to be executed per block, effectively increasing the total demand for ETH-denominated gas.
   
   

2. Price of Scarce Block Space: When the available capacity becomes congested, the cost per unit of block space rises sharply. This scarcity — derived from Ethereum’s strong commitment to decentralization and security — filters demand, ensuring that the highest-value economic activities are the ones consuming the majority of on-chain resources.
   
   

In this sense, Ethereum’s computational layer behaves like a scarce digital commodity. Its demand elasticity depends on the value generated by the applications running on it: when DeFi, NFTs, or onchain social protocols thrive, ETH’s utilization rises; when activity cools, demand subsides accordingly.

One of the most consequential protocol decisions in Ethereum’s recent history took place with the Dencun upgrade, which introduced a mechanism that dramatically reduced the cost of block space, particularly for Layer 2 networks. This change created a profound shock in ETH demand, one that gradually manifested in the asset’s price performance throughout 2024.

The rationale behind this upgrade was clear: to support the expansion of Layer 2 activity by making data availability on Ethereum cheaper and more scalable. In principle, this change should also have made Layer 1 activity more attractive, as lower fees can stimulate additional on-chain usage. However, what actually occurred was that Layer 1 activity remained relatively stable while its revenue collapsed. Meanwhile, Layer 2 networks experienced significant growth. This sudden repricing of block space produced a sharp contraction in ETH-denominated demand, and the token ultimately underperformed the broader market during a bullish phase, creating a negative feedback effect that rippled across the entire Ethereum ecosystem.

It is particularly notable that the Dencun upgrade was activated on March 13, 2024 — the very day Ethereum reached its yearly price peak. From that moment, while the network’s scalability and efficiency improved, the market began to reprice ETH’s economic role. As transaction costs fell sharply and the effective demand for block space in ETH terms weakened, the token entered a period of relative underperformance despite the broader bullish momentum across digital assets. This coincidence underscores how protocol-level improvements can generate short-term macroeconomic shocks in token demand, even when they strengthen the network’s fundamentals in the long run.

In practice, this move collapsed the marginal price of Ethereum’s block space, raising important questions about whether the protocol might, in effect, be subsidizing Layer 2 activity. While the intention was to foster growth across the broader Ethereum ecosystem, it is worth questioning how far fee reductions can go before they cease to stimulate meaningful additional demand.

The evidence so far suggests that Layer 2 demand has proven relatively inelastic. These networks were already capable of sustaining high transaction costs because their underlying economic activity — trading, DeFi, and gaming — could absorb them. As a result, the sharp fee discount introduced by Dencun may have gone well beyond what was necessary to drive adoption, potentially undermining the long-term sustainability of the Layer 1 ecosystem.

The risk is not primarily about validator revenue, but rather about the macroeconomic feedback loop that connects Ethereum’s on-chain demand with its token price. A sharp contraction in ETH-denominated demand leads to lower fees, which can translate into weaker token performance. This, in turn, affects the financial resilience of projects and treasuries across the ecosystem — many of which hold a large portion of their reserves in ETH.

In that sense, the Dencun upgrade revealed an unintended vulnerability: by optimizing for accessibility and lower costs, Ethereum may have temporarily destabilized its own demand base, triggering a deflationary cycle in token valuation that rippled through the entire network economy.

After the Dencun upgrade, Ethereum’s transactional demand — the organic need for ETH to pay for block space — weakened considerably. As the cost of executing transactions and posting data to the main chain collapsed, the economic activity within the ecosystem decoupled from direct demand for ETH itself. This shift left the token increasingly dependent on its role as a monetary or store-of-value asset, rather than as a pure utility token.

The sharp decline in ETH’s price following Dencun had a profound psychological and financial impact. It raised serious doubts about the token’s ability to preserve value over time, even as the network achieved unprecedented scalability and efficiency. This paradox highlighted a crucial insight: success at the protocol and ecosystem level does not automatically translate into token appreciation. Layer-2 activity, though booming, does not necessarily create equivalent demand for ETH — especially when that activity is insulated from Layer-1 gas consumption.

In essence, Ethereum demonstrated that network growth and token value are not perfectly correlated. A thriving ecosystem built on top of Ethereum may still coexist with a weakening monetary demand for ETH if the token is no longer the primary medium of exchange, collateral, or fee settlement within that expanded environment. This divergence will likely remain one of the central dynamics to monitor in the next phase of Ethereum’s economic evolution.

This monetary dimension of ETH found partial support through the emergence of institutional investment vehicles such as Digital Asset Trusts (DATs), which provided a new channel for large investors to gain exposure to the asset. These products helped sustain a baseline level of demand, reflecting growing recognition of ETH as a long-term digital monetary asset.

As illustrated in the chart, early 2025 marked a decisive turning point in Ethereum’s demand structure. While the direct, transactional demand for ETH — the one linked to on-chain activity and gas consumption — continued to decline, an unexpected and powerful wave of monetary demand emerged through Digital Asset Trusts (DATs).

This new demand has been the key factor behind ETH’s price recovery. Although ETFs have contributed by broadening access, it was the creation and rapid expansion of DATs that truly anchored Ethereum’s valuation during a period when the asset was under heavy selling pressure. These vehicles have allowed institutional investors to gain regulated exposure to ETH, effectively transforming it into a recognized monetary asset class.

The data shows that Strategic Entities and DATs now hold over 12.8 million ETH, representing more than 10% of total supply — a concentration that began forming at the start of 2025, perfectly in sync with the broader market rally. This accumulation not only provided much-needed liquidity support but also restored confidence in ETH’s monetary role, positioning it once again as a yield-bearing, scarce, and institutionally credible digital asset.

This phase also marked a strategic shift within the Ethereum Foundation, which began to actively defend ETH’s economic narrative for the first time. By developing a clearer communication and positioning strategy, the Foundation sought to reconnect Ethereum’s technological progress with its perception as a long-term store of value.

Yet beneath this apparent stabilization lies a deeper imbalance. Ethereum’s protocol-level revenue, derived mainly from transaction fees and burn mechanisms, remains insufficient to sustain continuous innovation and ecosystem funding. Most of the network’s growth is now taking place on Layer 2s, where activity generates minimal direct ETH demand.

This reality exposes a structural paradox: Ethereum’s ecosystem can expand while its native token’s utility demand erodes. The success of the protocol and the prosperity of the layers built upon it no longer guarantee demand for ETH itself. Today, it is the strength of DAT-driven monetary demand — not utility demand — that supports ETH’s valuation. For Ethereum’s economy to remain sustainable, the next stage must focus on reconnecting ecosystem growth with intrinsic demand for the token that secures and powers it.

Another key dimension in Ethereum’s demand structure is its role as a productive asset — one that can generate yield through staking. Over time, the percentage of ETH staked has grown steadily, now exceeding 30 million ETH, as seen in the chart. This expansion reflects the maturation of the network’s consensus layer, but also raises critical questions about the sustainability and attractiveness of staking itself.

The Ethereum Foundation once expressed concern that staking participation could grow excessively, to the point of threatening network decentralization. In fact, internal discussions even considered the idea of introducing negative real yields to discourage further concentration. Yet the reality has been quite different. Despite the ongoing increase in staked ETH, the actual yield — around 2% — has not proven attractive enough to justify holding an illiquid position for most participants.

Even in liquid staking protocols, where users receive derivative tokens (such as stETH or cbETH), liquidity remains limited. Exiting large positions still requires accepting a discount, since secondary markets lack the necessary depth to absorb redemptions without slippage. In practice, this means that even “liquid” staking carries an embedded illiquidity premium, reducing its appeal as a productive investment.

Moreover, the Dencun upgrade also impacted staking returns indirectly. Lower network fees reduced the burn rate and, consequently, the deflationary yield that had previously enhanced the attractiveness of ETH staking. This shift weakened the productive case for ETH — the narrative that staking not only secures the network but also offers a sustainable return.

At one point, the Foundation appeared willing to sacrifice staking profitability in favor of long-term protocol stability — a strategy that, if fully implemented, could have posed serious systemic risks. Fortunately, those proposals now seem to have been postponed or abandoned. Still, the challenge remains: redefining ETH’s value as a productive asset in a post-Dencun environment where fee revenue and token burns have both declined.

Revisiting the fee structure and reward mechanisms could be crucial to restoring ETH’s attractiveness as a productive asset. For Ethereum to maintain its economic balance, it must find a model that rewards validators fairly while preserving decentralization and aligning staking incentives with network health.

Another critical layer of ETH demand comes from its role as a core asset in decentralized finance (DeFi). Ethereum remains the foundation of DeFi’s collateral architecture, and in protocols such as Aave, ETH continues to be the primary underlying asset, representing a large share of total deposits and borrowings. This makes DeFi one of the most visible sources of active demand for ETH, especially during expansionary market phases.

However, this form of demand is highly cyclical and leveraged. In periods of volatility — such as the sharp market correction of October 10 — leveraged positions can quickly unwind, triggering large-scale liquidations and creating intense selling pressure on ETH. This characteristic makes DeFi-based demand powerful during bull markets but fragile in downturns.

A more sustainable form of ETH demand arises in non-leveraged protocols, where the token’s use is tied to genuine liquidity or trading activity rather than credit expansion. Uniswap serves as a prime example: ETH functions as a base asset in countless liquidity pools, sustaining continuous on-chain demand independent of market leverage. This type of utilization contributes to structural liquidity and economic stability across the ecosystem.

Where ETH demand has lagged most, however, is in the stablecoin sector. Decentralized stablecoins were once expected to create a constant source of collateral demand for ETH, yet adoption has fallen short. Many newer projects have shifted toward using alternative collateral types — such as liquid staking derivatives or real-world assets — reducing ETH’s direct role in this segment.

This gap represents one of the greatest medium-term opportunities for Ethereum. A new generation of stablecoin architectures, built on robust ETH collateral models, could reignite structural demand for the asset while reinforcing Ethereum’s monetary base. If ETH can once again become the preferred collateral for decentralized money, it would restore a critical feedback loop between the network’s activity and the token’s value.

The debates surrounding EIP-7762 and EIP-7691 go far beyond the technical nuances of blob pricing or throughput. At their core, these proposals represent an attempt to recalibrate Ethereum’s economic equilibrium after the disruptive effects of the Dencun upgrade.

When Dencun introduced blobs via EIP-4844, it achieved a remarkable goal: dramatically reducing rollup data costs and enabling scalable Layer 2 growth. However, this success came at an unintended price. By collapsing the cost of block space, Ethereum effectively decoupled on-chain activity from ETH-denominated demand, weakening one of the key monetary anchors of the protocol. The sharp decline in base fee revenue and burned ETH contributed to a phase of monetary contraction — one that left the token vulnerable even amid record ecosystem activity.

Now, with EIP-7762 proposing a higher minimum blob base fee and EIP-7691 seeking to adjust blob throughput, the network is implicitly confronting the question of sustainability. These adjustments are not about restricting rollups, but about restoring an economic gradient between Layer 1 and Layer 2 that ensures value continues to flow upward — to the protocol and its native asset.

In this sense, these EIPs can be viewed as part of a second phase of Dencun: a phase of reflection and rebalancing. The community is recognizing that cost efficiency alone cannot be the ultimate goal; the protocol must also maintain healthy feedback loops between network usage, ETH demand, and validator incentives.

If implemented carefully, EIP-7762’s recalibration of blob base fees could shorten price discovery cycles while ensuring that rollups contribute proportionally to mainnet economics. Similarly, EIP-7691’s exploration of higher blob throughput — paired with supporting mechanisms like EIP-7623’s calldata repricing — may achieve greater scalability without eroding the protocol’s financial integrity.

Ultimately, these proposals reflect a broader maturation of Ethereum’s economic governance. After Dencun, the conversation is shifting from scalability at all costs to sustainable scalability — a model where efficiency, security, and economic health coexist. The outcome of these debates will shape not only Ethereum’s data layer but also the long-term viability of ETH as both a productive and monetary asset.

Ethereum’s price is shaped not by its predictable supply, but by the interplay of multiple demand forces — organic, monetary, productive, and DeFi-based. Each tells part of the story of how ETH captures value from the ecosystem it powers.

The post-Dencun period revealed the fragility of this balance. Ethereum can grow more scalable and useful while its token weakens — unless the protocol’s economics are continually recalibrated. The rise of DATs has stabilized ETH for now, but true sustainability will depend on rebuilding direct, structural demand through gas usage, staking incentives, and collateral utility.

This article inaugurates the Ethereum Demand Weekly Tracker, a series dedicated to analyzing these evolving dynamics. By tracking how each component of ETH demand shifts over time, we can measure the real health of Ethereum’s economy — not only as a network, but as a financial system built on its native asset.