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Demand Under a Mechanical Price: Elasticity and Welfare in Ethereum's Data-Availability Market

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  • Farbod Ghasemlu

Abstract

Ethereum sells data-availability capacity to rollups through "blobs" priced by a controller: the blob fee rises and falls exponentially with cumulative usage above or below a target, and no auction sets it. We measure what this mechanical price costs. The Pectra upgrade of 7 May 2025 doubled blob capacity on a date fixed weeks in advance, while the market was congested, and the blob fee fell from 0.82 mETH per blob (about USD 1.40) to its 1-wei floor. Rollups' blob purchases rose 24%. The 95% interval, built from the same estimator at 516 placebo dates, runs from 8% to 40%, so removing the entire price raised purchases by at most 40%. The implied elasticity at the pre-shock price is -0.19, and no value below -0.31 is consistent with the interval. The estimate includes any rise in L2 activity that coincided with the fork, so it bounds the price response from above. With demand this inelastic, the controller works mainly as a transfer. Rollups paid USD 14.8 million in blob fees under the first blob regime, 67% of it in two quarters when capacity was full and any market-clearing mechanism would have collected comparable scarcity rents. Where capacity was slack, the reserve price introduced in December 2025 cost at most 2.6 ETH (USD 8,039) in deadweight loss under the most elastic demand the data allow. Mempool records for 5.4 million blob transactions show that when the fee sits at its floor, capacity is slack: transactions miss about one block and are almost never priced out.

Suggested Citation

  • Farbod Ghasemlu, 2026. "Demand Under a Mechanical Price: Elasticity and Welfare in Ethereum's Data-Availability Market," Papers 2610.16588, arXiv.org.
    • Handle: RePEc:arx:papers:2610.16588
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