Ethereum Pectra Upgrade: Deflation Returns, is $2200 Just the Starting Point?

Written by: Luke, Mars Finance

On May 7, 2025, the Ethereum mainnet quietly completed the Pectra upgrade, like a steady chess player making a move on the board, precise and low-key. This upgrade brought significant optimizations in account abstraction, Layer 2 (L2) scalability, and validator mechanisms, allowing Ethereum’s deflationary attributes to return once again. Even more exciting, the ETH price quickly broke through $2200 after the upgrade, currently reported at $2203.91, with a daily increase of 7.42%, sweeping away the previous market’s chilly gloom. However, behind the intertwining of technological breakthroughs and market enthusiasm, Ethereum still faces challenges such as the L2 ‘parasitic’ effect, competitive pressure, and narrative fog. Will this upgrade become a turning point for ETH to reshape its glory?

Pectra Upgrade: Ethereum’s “Technical Magic”

The Pectra upgrade is another milestone for Ethereum following the Dencun upgrade in 2024, integrating 11 Ethereum Improvement Proposals (EIPs) from Prague (execution layer) and Electra (consensus layer), aiming directly at scalability, user experience, and network efficiency. Imagine this as upgrading the core chip of a precision instrument, optimizing the transmission system, and adding a user-friendly touch interface. Here are a few core highlights showcasing how Ethereum elegantly turns on the technical stage:

EIP-7251: Validator “Slimming”, Efficiency Leap

In the past, the Ethereum network hosted over 1.07 million validator nodes, with each node staking 32 ETH, resembling a bustling digital city, but efficiency was somewhat sluggish due to being “overcrowded.” EIP-7251 raises the maximum staking balance for validators from 32 ETH to 2048 ETH, encouraging large players to consolidate nodes and reduce the total number of validators.

Highlights: Fewer nodes mean lower network load, and validator management is more efficient. Data from platform X shows that after the upgrade, the network operates as smoothly as silk, with significantly improved processing speeds.

EIP-7691: Blob expansion, L2’s “fast lane”

The Blob introduced by the Dencun upgrade has drastically reduced the cost of storing data for L2 Rollups, while Pectra takes it a step further by increasing the target number of Blobs per block from 3 to 6, and the maximum from 6 to 9. It’s like widening the rural roads of L2 into a multi-lane highway.

Highlights: According to Alchemy, Blob fees have dropped to an all-time low, L2 transaction costs have significantly decreased, attracting more DeFi and NFT projects to settle in, making the on-chain ecosystem more prosperous.

EIP-7702: Account Abstraction, the ‘Magic Key’ for User Experience

In the past, interacting with Ethereum for regular users was like operating an old-fashioned typewriter, with cumbersome and non-intuitive steps. EIP-7702 allows externally owned accounts (EOA) to temporarily transform into smart contracts, supporting batch transactions, gas sponsorship, and even allowing gas fees to be paid with USDC or DAI.

Highlights: User experience has undergone a revolutionary improvement. Batch trading saves time and effort, stablecoin payments for Gas make it easy for newcomers to get started, and the barriers to DeFi and dApps have been further lowered.

Other “finishing touches”

EIP-7002: The validator withdrawal process has been streamlined, with the activation time reduced from 9 hours to 13 minutes, considered a “lightning-level” optimization.

EIP-7549: Reshaping the Gas fee structure to make peak transaction fees more stable and avoid the embarrassment of “sky-high Gas”.

These improvements allow Ethereum to dance gracefully and efficiently on the blockchain stage like a skilled dancer. The Pectra upgrade not only enhances Ethereum’s technical performance but also opens the door to a new world for users and developers. How do these improvements affect ETH’s deflationary attributes and price trends? Let’s continue to explore.

Deflation Returns: The Destruction Volume “Ignites” ETH

The inflation and deflation of Ethereum depend on the balance between newly issued ETH (validator rewards) and burned ETH (EIP-1559 mechanism). The Pectra upgrade has decisively tilted this balance towards deflation:

Burning volume skyrockets: L2 scaling and account abstraction have stimulated on-chain activity, leading to a surge in mainnet transaction volume. According to observations from platform X, within hours after the upgrade, the ETH burn rate soared, with some users even reporting a short-term annual deflation rate of -6.8%. Although this extreme data may be driven by short-term enthusiasm, the fact is that the daily burn volume has doubled.

Reduced issuance: EIP-7251 decreases the number of validators, suppressing the production of new ETH. When the amount destroyed exceeds the issuance, the total supply of ETH begins to shrink, and deflationary properties re-emerge.

The “double-edged sword” of L2: The active L2 ecosystem (such as Base and Arbitrum) has increased the Gas consumption on the mainnet, but its independent economic model (revenue flowing to Coinbase or Arbitrum DAO) limits the capture of mainnet fees. According to DefiLlama, the Ethereum mainnet fees in the past 30 days were only $19 million, far lower than Tron ($51.8 million) and Solana ($39.4 million).

The return of deflation has given ETH holders hope, but its sustainability remains to be seen. If L2 activity slows down or users migrate to high-throughput chains like Solana, the amount of destruction may decline, and the deflationary effect may weaken.

Breakthrough of $2200: A “Warm Breeze” in Market Sentiment

The price of ETH broke through $2200 after the Pectra upgrade, with a daily increase of 7.42%, injecting a shot of adrenaline into a market that has been sluggish for a long time. However, this surge is driven both by technical factors and by the boost of market sentiment:

Technical benefits released: Pectra has upgraded and optimized user experience and L2 efficiency, attracting more on-chain activities. On platform X, crypto enthusiasts are discussing the reduction in Blob fees and the convenience of account abstraction, believing that these improvements will long-term benefit ETH demand.

Short-term speculation craze: futures premium slightly rose from 3% to 4%, although still below the neutral threshold of 5%, it indicates that leveraged longs are beginning to tentatively increase their positions. The market’s optimistic sentiment regarding upgrades has boosted trading volume, catalyzing a breakout.

The “warm wind” of the macro background: Despite ongoing global trade disputes and risks of economic recession, the crypto market has recently shown signs of recovery, with Bitcoin breaking through $100,000 providing a “tailwind” for ETH.

However, $2,200 is just the starting point. For ETH to regain the March high (around $2,400) or even challenge its historical peak, it must confront multiple challenges.

The “roadblock” on the price path

Despite the Pectra upgrade igniting the spark of deflation and price increases, ETH’s path to rising remains fraught with thorns:

The “parasitic” dilemma of L2:

L2 chains like Base (with 10.3 million monthly active users) belong to the Ethereum ecosystem, yet they retain most of their revenue within their own ecosystem (Coinbase, Arbitrum DAO), leading to a decline in the mainnet’s fee capture ability. This makes the deflationary effect of ETH more reliant on L2 activities rather than direct demand from the mainnet.

Vitalik Buterin once suggested that L2 could support the value of ETH through burning fees or staking, but currently the centralized sorters and independent models of L2 have not been effectively integrated.

The competitive “pack of wolves lurking”:

Solana has attracted 82 million monthly active addresses with its high throughput and low fees, and its explosion in DEX and AI narratives (DeFAI, AI Agent) has pushed the SOL/ETH exchange rate to a new high. Solana’s positioning as the “on-chain Nasdaq” is clear, with unified liquidity and concentrated innovation.

Tron’s progress in the stablecoin market and Hyperliquid’s advancements in perpetual contract trading have further diverted traffic from Ethereum. In contrast, Ethereum’s L2 fragmentation has made innovation appear “replicative.”

The “alienation” between centralization and retail investors:

EIP-7251 raises the staking threshold to 2048 ETH, attracting institutions but deterring retail investors. A user on X joked: “Ethereum has turned from a decentralized dream into an institution paradise.” Centralization risks may trigger regulatory scrutiny, undermining community trust.

Ethereum’s strong decentralization makes it difficult for a single capital to “control” it, which is both an advantage and a resistance in the eyes of Wall Street. The advancement of ETFs has been hindered due to the lack of staking yields and high management fees, causing investors to miss out on an approximate annualized return of 3.5%.

The “mist” of narration:

Bitcoin is known as “digital gold”, Solana is referred to as “on-chain Nasdaq”, but what is the North Star of Ethereum? DeFi remains its core advantage, but the fragmentation of L2 dilutes this advantage. Metis’s transformation into an AI public chain and Solana’s DeFAI craze are both vying for the narrative initiative of Ethereum.

The Ethereum Foundation’s execution speed and communication transparency have also been criticized. Although the new co-executive directors Tomasz Stanczak and Shay Wong have promised to accelerate hard forks (once every 6 months) and optimize communication, the community is still waiting for substantial changes.

The “North Star” to the future

To enable the ETH price to break through $2400 or even higher, Ethereum needs to tackle both technical and market aspects simultaneously and find its own “North Star”:

The “symbiosis” between L2 and the mainnet:

Promote L2 fee burning or staking mechanisms to enhance the mainnet’s demand for ETH. If Vitalik’s suggestions can be implemented, it will effectively alleviate the L2 “parasitism” problem.

Enhance L2 interoperability, reduce fragmentation, and allow users to switch seamlessly between Base and Arbitrum, rivaling Solana’s unified experience.

Narrative Reshaping and Institutional Exposure:

Pectra’s high staking threshold paves the way for real-world assets (RWA) on-chain, with Ethereum creating a narrative of “ETF staking + RWA platform” to attract institutional funds. Users on platform X have predicted that RWA could become a crypto hotspot in 2025.

Increase staking yield or launch dApp incentive programs to stimulate participation from retail investors and developers, reigniting community enthusiasm.

The “Acceleration” of Technological Iteration:

The next step of the Fusaka upgrade (expected in the fall of 2025) will introduce Verkle Trees and PeerDAS, further enhancing L1 efficiency. The Amsterdam upgrade (in 2026) aims for a 3-10 times increase in throughput, challenging Solana’s high performance.

The Ethereum Foundation’s commitment to a 6-month hard fork cycle, if realized, will significantly enhance market confidence in technological advancements.

The “tipping point” of the community:

Activate the dApp ecosystem through hackathons, funding programs, and developer support. Tomasz Stanczak mentioned that optimizing the developer onboarding process and the structure of ACD meetings will allow DeFi builders to participate in planning earlier.

Enhance communication with users to avoid the “ivory tower” image. If Shay Wong’s concept of “clear leadership and purposeful action” can be implemented, it will reshape community trust.

Conclusion: The “New Starting Point” of $2200

The Ethereum Pectra upgrade acts like a catalyst, igniting the deflationary attributes of ETH and pushing the price to $2203.91. This is not only a recognition of technological advancement but also injects a glimmer of warmth into a long-dormant market. However, the “parasitic” effects of L2, the competitive pack of wolves lurking around, concerns of centralization, and the fog of narratives remain challenges on ETH’s path to higher goals. The future of Ethereum depends on whether it can transform its technological advantages into market momentum and find its own “North Star”—perhaps in ETF staking or the institutional wave of RWA.

As one X user said: “Pectra makes Ethereum smarter and faster, but the real price explosion requires a story and belief.” $2200 is just the starting point, and Ethereum’s story is still being written. Are you ready to get on board?