A brief analysis of the potential impact of Ethereum 2.0 pledge on the token economy

The Ethereum 2.0 pledge mechanism not only allows the pledger to earn income, it also makes ETH itself a productive asset.

Original title: “ETH2.0: PoS pledge brings profound impact to ETH”
Author: Blue Fox Notes

With the release of the Ethereum storage contract, people are becoming more and more interested in ETH2.0.

ETH2.0 is an upgrade to the current Ethereum. It has to solve the scalability and cost of Ethereum. In the past few months, almost all crypto users have felt deeply: Ethereum is too congested and the fees are too expensive. However, ETH2.0 needs to change the consensus mechanism, sharding, alleviating the congestion problem of Ethereum, and building a better infrastructure for the DeFi ecosystem.

So, how is ETH2.0 different from today’s Ethereum? First, there were two different chains at the beginning. ETH2.0 is a PoS chain, which is two different chains from the current Ethereum PoW chain. The two will eventually merge in the future.

ETH2.0 is not a one-time implementation, it is a huge system project. According to the plan of Ethereum, ETH2.0 has three main stages:

• Phase 0
• Phase 1
• Phase 2

However, these three stages are advancing in parallel, not the linear advancement that people imagine. On the whole, ETH2.0 will bring PoS consensus, sharding, new virtual machine (eWASM), etc.

The ETH2.0 development route that people imagine is different from the actual one, Meeseeking

Among them, Phase 0 is dominated by the beacon chain. Phase 0 has been tested for more than 4 months since July 2020, and now the ETH storage contract has been released, which means that the ETH2.0 beacon chain will officially start. Once the week before December 1st, the pledged ETH reaches 524,288 ETH (that is, 16384 validators), the mainnet can be officially launched.

Beacon Chain is a PoS chain, and it also prepares for future sharding chain management. It involves the management of pledgers, the management of pledge funds; random number generators; random selection of block producers; formation of a committee of validators to propose blocks Voting; rewards and punishments for pledgers, etc.

After Phase 0 is launched, the Ethereum network will have two chains, one is a PoW chain with token ETH1, and the other is a PoS chain with token ETH2. Users can transfer ETH1 to ETH2 and become a validator, but it is currently a one-way movement. Users cannot exchange ETH2 back to ETH1.

Phase 1 focuses on fragmentation. Phase 1 plans to deploy 64 shards, plus the beacon chain, for a total of 65 chains. The beacon chain is a hub chain, which communicates with other 64 shards in two ways. Phase 1 mainly involves writing data in the shard chain while achieving effectiveness and consensus.

Phase 2 In this phase, the integration of the system begins. The new virtual machine supports the execution of accounts, contracts, and states, and can transplant the previously familiar tools. In short, ETH2.0 is a huge project, which will take at least a few years to complete.

The relationship between ETH1x, ETH2 and Rollup, Trent Van Epps

So, what is worth paying attention to for ordinary users with the launch of ETH2.0?

PoS pledge of ETH2.0 will lock a large amount of ETH

The current DeFi market has locked 7.8 million ETH, which is currently valued at more than $3.7 billion.

ETH locked in DeFi, DEFI PULSE

However, as ETH launches its storage contract, the final locked amount of ETH will far exceed this level in the future. In the short term, it is estimated that more than 5 million ETH will be deposited. In the medium and long term, at least 10 million or more ETH will enter the pledge contract.

With the entry of wallets, exchanges, DeFi protocols, and ETH pledge service networks, it may even reach 20-30 million ETH pledge deposits. On the one hand, it is because the entry barrier is lowered, and the most important thing is based on the current pledge return rate of ETH2.0.

The relationship between the amount of ETH pledged and the income, ethereum.org

As can be seen from the figure, the annualized income of pledged 10 million ETH can also reach 5.72%, which exceeds the current storage income of ETH in the market. Even if 30 million ETH is deposited, the return rate can reach 3.3%. , And its income is priced in ETH. If the price of ETH increases, the income will be even higher.

At the same time, if you consider that a considerable proportion of ETH has been lying in the wallet for a year without moving, this means that the actual circulation of ETH will continue to decline in the future. As PoS matures, ETH will gradually become a low-inflation asset, and even with the implementation of the EIP-1559 proposal, it may become a deflationary asset.

At present, many people are worried about whether ETH2.0 can be launched as scheduled, and even more worried about how many people are willing to deposit their ETH into the storage contract. At present, it has just exceeded more than 100,000, which is far from the minimum required 524,288 ETH.

There are several issues that need to be resolved. With the resolution of these issues, first, startup will not be a problem, but sooner or later, it is likely to be completed within this year; second, as more and more ETH2.0 pledge service networks emerge, ordinary users will also You can participate in the pledge of ETH2.0. These pledge service networks will solve the following problems:

• The problem of not being able to participate in the small amount of ETH. A pledge service network like Rocket Pool, according to its plan, only needs 0.01 ETH to participate in the pledge and earn the income;
• The technical threshold of the verification node. Although setting up nodes is not too complicated, it is still troublesome for most ordinary users, and the pledge service network can help users solve this problem;
• The liquidity issue of pledged tokens. At present, many people do not participate in staking because they are worried that after ETH is transferred to the storage contract, the transfer and withdrawal are temporarily impossible. The pledge network can give users corresponding equity tokens after users deposit ETH. For example, in Rocket Pool, users will get rETH, and rETH can be traded, pledged, etc., without worrying about liquidity issues.
• Punish risk issues. Many users worry that they will be punished for participating in the pledge. With the pledge network, this pressure can be alleviated through distributed deposits.

At present, at least a dozen projects such as Rocket Pool, Ankr, Stafi, Lido, liquidsatke, stakewise, codeFi, etc. are in progress. On the one hand, these projects can solve the problem of ordinary users participating in pledge, and on the other hand, these projects themselves are also worthy of attention. At present, there are many players on this track, and there is no real leader. You can focus on the follow-up user experience and reputation of these projects to find relevant opportunities.

If ETH2.0 locks ETH above tens of millions, this will greatly reduce the ETH circulating in the market. At the same time, with the development of DeFi, it is possible that the demand for ETH exceeds the supply of ETH. In this case, if the overall market sentiment turns warmer, it means that ETH also has the opportunity to follow the halving effect of BTC and form upward momentum.

If this happens, it is two-wheel drive, showing an upward trend different from 2017.

In addition, ETH plans to launch EIP-1559 in the future. The so-called EIP-1559 is to change the pricing mechanism of Ethereum network transactions from the original auction mechanism to a basic fee + tip charging mechanism. The original auction mechanism is user bidding. Miners choose high bid transactions and pack them into blocks first. This mechanism leads to low bidding efficiency. It is difficult to estimate how much the bid is appropriate, and it is easy to cause delays, selfish mining and other problems.

The most important point of the EIP-1559 payment structure is that its basic fee is destroyed. This part of the fee is paid through ETH. This means that if the scale of economic activity on Ethereum is large enough, it may cause a large amount of ETH to be destroyed, although ETH is the mechanism of inflation. However, if its trading volume is large enough, it may cause the burned ETH to exceed the additional ETH, which may cause ETH to enter deflation. Of course, this scenario is unlikely to be realized in the short term.

Regardless of whether it can enter deflation, the destruction of ETH can reduce its circulation. If this happens, the miners are more concerned about the block rewards of ETH; and holders no longer use ETH as a tool for value circulation, and will gradually regard it as a token for value storage. In this case, ETH has two values: one is value circulation; the other is value storage. Because ETH itself is not only based on consensus, but also based on revenue, which allows ETH to capture a truly solid foundation value.

At present, Ethereum’s annualized income fee income is 580 million US dollars, which already has a certain scale.

ETH annualized fee income, Tokenterminal

The above is to look at the staking effect of ETH2.0 from the surface of the income, but if we further analyze it, we will find that the PoS staking mechanism of ETH not only allows the pledger to earn income, it also makes the ETH attribute happen. Major changes, which will have a major and profound impact on the long-term value of ETH.

ETH attribute changes under PoS pledge

Taking into account the PoS pledge mechanism of ETH2.0, ETH itself has also become a productive asset. It can generate income through pledge, which allows it to capture the value of system growth.

Both PoW and PoS are mechanisms to help blockchain achieve consensus, and there are many differences between the two. From the perspective of system operation, one of the differences is: one is “externalized” and the other is “internalized.” Over time, the two chains will exude more and more different temperaments.

In the Pow mechanism, miners invest in energy and hardware assets, and they are more inclined to sell them for profit, which is “externalized”. At the same time, BTC is generated through external means of production. BTC itself is not a means of production. BTC is more like a commodity. It is produced through energy and machines. Like BTC under PoW, both are more like virtual commodities, both through mining. generate.

The PoS mechanism is “internalized”. ETH itself becomes a tool for gaining revenue and a means of production. The more tokens pledged, the more revenue you will get. In PoW, the means of production are energy and hardware, and in PoS, ETH itself is the means of production. This makes ETH under PoS have completely different properties from BTC and ETH under PoW.

In addition, there is another characteristic of generating income through ETH pledge, that is, it does not have counterparty risk, and its risk is the inherent risk of the agreement system. If BTC is tokenized and then borrowed and borrowed on the Ethereum DeFi, although it can also generate income, it has counterparty risks. The benefits generated in this way are exogenous.

This new attribute of ETH’s means of production will make it more scarce in the future and more integrated with the system, thereby capturing greater value and obtaining greater premiums.

Finally, it needs to be emphasized that the crypto market is extremely volatile and risky, and the market is always unpredictable. Any logic and reasoning are pale in front of the black swan. Do your own research, do your own risk control, and make your own decisions at all times.

Source link: mp.weixin.qq.com