Ethereum’s scarcity journey: will ETH really enter the era of deflation?

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EIP-1559, ETH pledge, and the merger of the old and new chains will bring unprecedented supply shocks to ETH.

Original title: “View | ETH Supply Shock”
Written by: Anthony Sassano, co-founder of EthHub Compilation: Nanfeng

We all know that since EIP-1559 was implemented in early August this year, a large amount of ETH has been destroyed in the past 6-7 weeks (the number of ETH destroyed at the time of writing and more than 345,000), but I have not seen this Destroy data on the impact of Ethereum miners. As shown in the figure below, after the implementation of EIP-1559, Ethereum miners can sell less and less ETH, and this is just the beginning of the ETH scarcity journey .

Image source: https://dataalways.substack.com

EIP-1559 is not the only supply shock that miners will face. In fact, once the Eth1 chain merges with the PoS beacon chain, the miner’s income will drop to 0 (because the Ethereum 1.0 chain will abandon the PoW mechanism by then), and it will be used to reward the newly issued ETH to Ethereum stakers. amount than the amount ETH PoW mechanism in the new issue of reduction to 90%, while those who pledged Square Ethernet (instead of miners) will get all transaction fees are not destroyed.

It is worth noting that one major difference between Ethereum PoW miners and PoS pledgers is that unlike PoW miners, pledgers are not forced to sell their ETH income to pay for very high electricity, maintenance, and personnel costs. , Rent, hardware cost, etc. The pledger only needs to sell some ETH to pay taxes ( if any) and less electricity costs . All of this will bring a more obvious supply shock to ETH than the ~90% reduction in additional issuance.

Of course, scarcity without demand is meaningless, but the beauty of ETH is that many different use cases have created crazy demand for ETH, including the use of ETH to pay for Gas (most of which will be destroyed) , Use ETH as collateral in DeFi applications , use ETH as “currency” to trade NFTs , use ETH as a means of value storage , and use ETH as a pledged asset to participate in Ethereum staking, etc.

As of the time of writing, more than 7.72 million ETHs have been pledged into the Ethereum deposit contract. These pledged ETHs will be locked for at least 1 year (this means that these pledged ETHs will be used for a long period of time). Not in circulation for a while), and this number continues to grow.

Obviously, as Ethereum expands its use cases, the demand for ETH will only continue to grow and strengthen over time , and ETH will continue to consolidate its position as the “Internet native currency”. Regarding the scarcity of ETH and its demand engine, please refer to the previous article “The Scarcity Engine of ETH”.

Some people may refute this and ask whether this level of scarcity is really desirable for a cryptocurrency, but I think there is a common misunderstanding here. Although ETH is the “currency” in the Ethereum network, it is not an ideal “currency” : the best use of ETH is to create an ideal “currency” as a powerful and valuable collateral asset . For example, RAI is a “stable currency” whose value is not anchored to the US dollar, and RAI only uses ETH as collateral to issue , because it wants to use ETH’s decentralization and collateral properties while creating a stable asset . Of course, there are many other projects that are also trying to create a decentralized stablecoin, and I think most of these projects will use ETH in some way .

I have said many times before that EIP-1559 is just an appetizer. The real supply shock of ETH is the merger of the old and new chains of Ethereum ! I personally look forward to seeing how much new ETH will be issued by staking, and how much newly issued ETH will eventually be sold by the staking. I think both of these will be very low , which will bring about a liquidity crisis on the ETH supply side , that is, there is not enough ETH to meet its great demand.

In short, EIP-1559, ETH staking and the merger of the old and new chains will bring unprecedented supply shocks to ETH .

Disclaimer: As a blockchain information platform, the articles published on this site only represent the author’s personal views, and have nothing to do with the position of ChainNews. The information, opinions, etc. in the article are for reference only, and are not intended as or regarded as actual investment advice.

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