Quantum Letter | March 2026
DISCLAIMER
The Quantum Letter is published by Quantum Capital, a registered trade name of Patriot Advisory Group LLC, a registered investment adviser registered with the State of New Hampshire. This content is for informational and educational purposes only and is not intended for use as investment advice or a recommendation to buy or sell any security or digital asset. Investing involves risk, including the possible loss of principal. Digital assets are speculative and subject to significant volatility and regulatory uncertainty. The views expressed are those of the authors as of the date of publication and are subject to change. Please read the full disclosures at the bottom of this letter.
Ethereum is currently inflationary.
If you've been watching the numbers, you already know this. The network is issuing more ETH than it's burning. Every transaction on Ethereum permanently removes a small amount of ETH from existence - that destruction is the burn - and right now, the network isn't transacting at the volume needed to outpace what it creates. That gap, while modest, has persisted through much of the past year. On its surface, that sounds like a problem.
It isn't.
What it actually represents is a network at the precise moment before a structural inflection - one that is visible in the math, traceable through the regulatory architecture being built right now, and largely invisible to anyone who hasn't done the work to understand what drives Ethereum's supply equation.
We've done that work. And what we found is this: Ethereum was architecturally designed to flip deflationary. It is a function of how the network generates fees, burns supply, and responds to demand. The transition from inflationary to deflationary isn't a question of if. It's a question of what volume of institutional activity is required to tip the equation - and what happens to supply when it does.
This letter walks through that math.
For readers who want the full regulatory and institutional context behind what we're describing, we'd point you to our prior work: America's Great Financial Upgrade, The Ethereum Inflection Point (December), and Ethereum's Institutional Trajectory (January). This piece assumes that context and moves directly into the mechanics.
Ethereum's fee structure was fundamentally redesigned in 2021 with an upgrade called EIP-1559. Before that upgrade, transaction fees went entirely to miners. After it, the mechanism changed in a critical way: a portion of every transaction fee is now permanently removed from circulation. That removed portion is the burn. What remains goes to the validators who secure the network.
This created a simple but powerful equation. Ethereum issues approximately 1,700 new ETH every day through staking rewards - that's the supply side. On the other side, every transaction on the network burns a variable amount of ETH depending on how much activity is happening. When burn exceeds issuance, the total supply of ETH shrinks. When issuance exceeds burn, it grows modestly. Right now, we're in the latter scenario - but not by much, and not for the reasons most people assume.
The L2 Paradox
Here's where it gets interesting. Ethereum's ecosystem has been growing rapidly. Transaction volume is up. Developer activity is up. The total value locked in Ethereum-based applications has surged. By almost every measure, the network is more active than ever.
So why isn't the burn keeping pace?
The answer is Layer 2. To understand it, think of Ethereum as having two distinct layers. Layer 1 is the settlement layer - it's where transactions are finalized, where fees are generated, and where ETH gets burned. Layer 2 sits above it, handling the bulk of everyday transactions cheaply and efficiently, then periodically settling the results down to Layer 1 in compressed batches.
Think of Layer 2 as the most secure digital vault in the world. Institutions, developers, and users park their activity there because it's fast, cheap, and extraordinarily safe. Layer 1 is the chip window at the casino - every time real money moves, every time something needs to be settled with finality, it has to come through there.
A 2024 network upgrade called Dencun made Layer 2 dramatically more cost efficient. The paradox it created: the more activity moves to Layer 2, the less fee pressure lands on Layer 1 in the short term. Burn stays subdued even as the ecosystem grows.
This is the network scaling exactly as designed. The question for anyone tracking Ethereum's supply trajectory is straightforward: what brings sustained, high-volume demand back to Layer 1? And the answer to that question is where the math gets very interesting.
Let's put the current numbers on the table.
Every day, the Ethereum network issues approximately 1,700 new ETH through staking rewards. On the burn side, under current network conditions, somewhere between 800 and 1,200 ETH are being destroyed daily. That leaves a net surplus of roughly 500 to 900 ETH entering circulation every day - a mild inflation rate of approximately 0.15% to 0.27% annually.
To put that in perspective, that is one of the most modest inflation rates of any major asset in the world. But it is still inflation, and for Ethereum's supply thesis to fully materialize, that equation needs to flip.
Here is what makes this moment significant. The gap between where we are and deflationary territory is not large. Burn needs to reach approximately 1,700 ETH per day just to hit net zero - a neutral supply position. Push burn to 2,000 or above, and Ethereum begins actively shrinking in supply. The network doesn't need a speculative retail frenzy to get there. It needs a specific and measurable increase in one thing: Layer 1 transaction activity.
And this is where burn rate becomes the most important number we track at Quantum. Burn rate is revenue. It is the most direct measure of how much real economic activity is flowing through the settlement layer. When institutions are transacting, settling stablecoins, tokenizing assets, and moving capital through Ethereum's base layer, the burn reflects it immediately. It is the network's vital sign.
Right now that vital sign is subdued. But the conditions that change it are structural, they are measurable, and several of them are already in motion.
The reason burn is subdued today is also the reason the inflection, when it comes, will be structural. Layer 2 has absorbed the growth of retail and developer activity. What it cannot absorb - what by design must settle on Layer 1 - is institutional demand. And institutional demand operates through three specific channels.
Stablecoin Settlement
Ethereum currently hosts over $150 billion in stablecoin supply, representing roughly 60% of all stablecoins in existence. Every time a stablecoin is minted, burned, or transferred at institutional scale, that transaction settles on Layer 1. These are not retail transfers. We are talking about banks, fintech firms, and asset managers moving hundreds of millions of dollars at a time, requiring the security and legal finality that only Layer 1 provides.
Treasury Secretary Scott Bessent has publicly framed stablecoins as an important feature of financing the U.S. government. If stablecoin supply grows from $150 billion today toward $300 to $400 billion by 2028, as Treasury's own framework implies, the settlement volume flowing through Ethereum's Layer 1 grows with it. Every dollar of that volume generates fees. Every fee burns ETH.
Real World Asset Tokenization
Tokenized treasuries, securities, and real estate require Layer 1 settlement for legal and custody reasons. This is how the architecture works. BlackRock, Fidelity, and other major asset managers have publicly stated they are positioned and waiting for regulatory clarity before scaling their tokenized product lines. Current on-chain real world assets sit at approximately $50 billion. Conservative institutional projections put that figure at $300 to $500 billion by 2028.
Every tokenized asset that moves, settles, or changes hands on Ethereum burns ETH on Layer 1.
Corporate Treasury and ETF Activity
Public companies are beginning to hold ETH on their balance sheets the way they hold cash - as a yield-generating strategic reserve. Staking rates among institutional holders are already approaching 100%. BlackRock's ETHA fund alone holds approximately 3 million ETH. As more corporate treasuries follow, the custody movements, staking operations, and collateral transactions they generate all flow through Layer 1.
This category doesn't require a single large event to drive burn. It compounds quietly and consistently as institutional adoption broadens.
Why This Matters for the Equation
These are the operational requirements of institutional finance settling on a blockchain. And critically, none of them can be routed through Layer 2. They require the finality, security, and legal standing of Layer 1 settlement.
This is the mechanism that changes the burn equation. Institutions doing what institutions do - moving and settling capital at scale - through the only layer built to handle it.
The regulatory framework that unlocks this activity at full scale is the Clarity Act. We have covered its architecture and progress in depth across our prior letters. What matters for this piece is the role it plays in the math: Clarity is the gate. Once it opens, the institutional volume described above moves from projected to operational. And when that happens, the burn equation shifts in a way the market has not yet priced.
We now have everything we need to run the math. A fixed issuance of approximately 1,700 ETH per day. A burn rate that responds directly to Layer 1 transaction volume. And three institutional demand channels that are measurable, structural, and currently sitting behind a regulatory gate that is in the process of opening.
The question the equation asks is simple: at what daily burn rate does Ethereum's supply flip, and what does that level of network activity actually require?
The Break-Even Point
At 1,700 ETH burned per day, Ethereum reaches net zero. Supply is neither growing nor shrinking. That number is not far from where we are today. Current burn runs between 800 and 1,200 ETH per day. The gap between the top of that range and break-even is approximately 500 ETH per day - a modest increase in Layer 1 activity gets us there.
Now lets get into the math.
The Near-Term Scenario: 2,200 to 2,400 ETH Burned Per Day
When we model institutional activity at conservative post-Clarity adoption levels, the math produces a daily burn of approximately 2,200 to 2,400 ETH.
This requires steady institutional Layer 1 settlement activity at levels that are structurally achievable once regulatory clarity removes the current blocker.
The 2027 Scenario: 2,800 ETH Burned Per Day
As stablecoin supply scales toward $300 billion and RWA tokenization moves from pilot programs to operational infrastructure, the burn rate in our 2027 model reaches a daily average of 2,800 ETH.
At that rate of supply compression, combined with the institutional capital inflows already underway, the math converges on an ETH valuation in the range of $11,500 by end of 2027. This figure is consistent with projections published by Standard Chartered and multiple institutional research desks - and it assumes no retail speculation, no speculative premium, and continued L2 headwinds suppressing baseline burn.
The 2028 Scenario: 3,600 ETH Burned Per Day
By 2028, if Treasury's stablecoin framework drives supply toward $400 billion and corporate treasury adoption reaches 20 to 30 public companies holding ETH on their balance sheets, the daily burn in our model reaches 3,600 ETH.
At that level of sustained supply compression, with cumulative institutional capital inflows exceeding $100 billion across ETFs, corporate treasuries, and DeFi TVL, the math produces an ETH valuation in the range of $18,000 by end of 2028.
What the math shows is that the move from where Ethereum is today to where the equation places it in 2027 and 2028 does not require anything extraordinary. It requires the institutional demand that is already forming to begin flowing through Layer 1 at scale.
There is a tendency to evaluate Ethereum through the lens of Bitcoin. When Bitcoin rises, ETH follows. When Bitcoin corrects, ETH corrects harder. For most of crypto's history, that relationship has held. Ethereum has never fully escaped Bitcoin's gravitational orbit.
The deflationary flip changes that.
When Ethereum crosses into sustained deflation - when the network is consistently destroying more supply than it creates - it becomes what it actually is: productive financial infrastructure with a shrinking supply base and a yield. That is a fundamentally different investment profile, and institutional capital prices it differently.
This is the moment we are watching for at Quantum. The moment when the burn rate sustainably exceeds issuance is the moment Ethereum's identity in institutional portfolios shifts permanently. A yield-generating settlement layer with deflationary supply characteristics belongs alongside infrastructure assets - and infrastructure assets are priced on cash flows and scarcity, not sentiment.
The math we walked through in the prior section is conservative by design. It assumes no retail participation. It assumes continued L2 headwinds. It assumes steady institutional adoption without acceleration. And even under those conservative assumptions, the equation produces a supply dynamic that the market has not yet priced.
When it does price it, there will be no looking back. Assets that cross structural thresholds of this kind - where the fundamental supply and demand equation permanently shifts - do not revisit the prices they left behind.
The work in this letter is an ongoing effort, one snapshot in a continuous process of tracking what matters.
We have been building the Quantum Tracker - a suite of tools designed to make the metrics that matter visible in real time to anyone who wants to follow them. The first piece of that infrastructure we have been developing is a burn rate versus issuance monitor: a live view of the single most important number in Ethereum's supply equation, updated as the network moves. When burn crosses issuance, you will see it. When institutional activity begins flowing through Layer 1 at the volumes we have modeled here, the tracker will reflect it before the broader market has processed what it means.
We are also tracking the full regulatory build-out - the legislation, the policy signals, the institutional positioning data - and how each piece connects to Ethereum's emergence as a settlement layer. That work is ongoing, and we will be sharing more of it as the infrastructure comes online.
The math in this letter points in a clear direction. Our job at Quantum is to keep watching the numbers that confirm or challenge that direction in real time - and to make sure the people following our work see what we see, when we see it.
The deflationary flip is coming. The equation is already written. We are watching for the moment it crosses.
IMPORTANT DISCLOSURES AND RISK INFORMATION — PLEASE READ IN FULL
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