ETH needs a supply cap at 128 million

Economics
1

Summary

Ethereum’s monetary policy works well today, but it is still harder to explain than it needs to be.

We currently rely on:

  • variable PoS issuance
  • fee burn via EIP-1559
  • and a dynamic equilibrium between the two

This is elegant, but not simple.

Proposal: introduce a hard cap at 128,000,000 ETH.

With the current supply at ~121M, this leaves ~7M ETH of headroom, while formalising the scarcity Ethereum is already converging toward.

The rule

Add a single invariant:

If total supply ≥ 128,000,000 ETH, then issuance = 0

  • Below the cap → normal issuance rules
  • At or above the cap → no new ETH issued
  • Burn continues via EIP-1559

This makes the system:

  • bounded above
  • still responsive below the cap
  • strictly non-inflationary at the ceiling

Why this helps with ultrasound money

1. A simple Schelling point

  • clean
  • easy to communicate
  • comparable to Bitcoin’s 21M

Ethereum’s monetary policy is often “too clever,” which makes ETH harder to explain as a scarce asset. A hard cap removes that ambiguity.

2. From conditional to guaranteed scarcity

Today:

ETH can be deflationary

With a cap:

ETH supply is strictly bounded, and burn can push it lower

This turns ultrasound money from an emergent property into a protocol guarantee.

3. Alignment with reality

We are already:

  • at ~121M supply
  • operating under low issuance

The cap simply formalises an endpoint that is very unlikely to ever be reached.

So why not explicitly codify what is already true in practice?

Conclusion

Ethereum already behaves like a scarce asset, but communicating this externally is difficult.

A hard cap makes this:

  • explicit
  • enforced at the protocol level
  • trivial to explain

Ultrasound money, with a hard ceiling.

2 Likes
2

This would make for a somewhat awkward toggling between blocks that get rewards and blocks that do not, as it went over the limit, and then gas fees brought it back under the limit.

However, you could slightly modify this proposal to reduce issuance linearly as it approaches the limit. In this way it essentially functions like an AMM that discovers the correct issuance for maintaining a fixed supply, while providing smooth issuance per block. It would also still have a hard cap that you could explain to people, it would just never be able to reach it.

(I’m not necessarily in favor of this proposal, but I think this would be a better version of it.)

3

Thanks, @DanielVF. Indeed, it would be a weird bounce up and down if we ever got there. I think in reality, we never get there; it’s just an easy meme. Ultrasound money predicts a supply of 125M in 200 years!

1 Like