Ethereum’s flywheel

Words are written in the front

Today, Ethereum is US$4,600, with a market value of more than US$540 billion, ranking 15th in the global asset rankings, close to Tencent.

Last month, Ethereum also experienced a community debate, and 3ArrowCapital has publicly announced that it will abandon Ethereum.

Many people are thinking, what is the essence of Ethereum?

Is Ethereum going to be abandoned by history?

What does the 2.0 upgrade mean for Ethereum?

The following is the content of my speech at Huobi University on July 15 this year, from the perspective of assets, to understand what is Ethereum.

At that time, the price of Ethereum was 1950 US dollars. Today, many opinions have been verified, and they are available for your reference.

To understand what is Ethereum, we can first understand what an asset is.

What is an asset?

Robert Greer published a paper ” What is an Asset Class Anyway? ” in 1997. Any asset that satisfies a certain attribute is an asset.

  • First, an asset has the characteristics of cash flow. For example, if it can generate cash flow, then it can be called an asset. For example, company stocks, some leased real estate, can generate cash, then he can call it an asset.
  • Second, an asset has a consumption property. For example, if it can be consumed and converted into another valuable thing, then it can also be called an asset. For example, many production raw materials, wood, ore, and energy, raw materials, these things can also be called assets.
  • Third, assets have the property of storing value, such as gold and precious metals.

Robert Greer believes that these 3 characteristics can cover all asset classes:

  • Stocks and bonds have cash flow characteristics;
  • Energy raw materials are consumable assets. Consuming material A can be converted into material B, and consuming flour can be converted into bread;
  • Precious metals and gold have value storage properties;
  • Real estate has two attributes. It is not only a cash flow asset, renting out a house to obtain rent; it is also a storage value asset;
  • Moutai also has two attributes. It is both a store of value asset and a consumable asset because on the wine table in China, Moutai is equivalent to a GAS Fee.

So what asset does Bitcoin belong to?

Bitcoin before 2018 is a store of value asset.

After 2018, what has changed?

Defi appeared.

Before Defi, Bitcoin was purely digital gold;

But with Defi, Bitcoin can become a cash flow generating asset. It can be packaged as WBTC and stored in the Defi network to become an interest-bearing asset. Because of Defi, Bitcoin has gone from a pure storage value asset to a cash flow generating asset.

So what asset does Ethereum belong to?

Before 2018, Ethereum was a consumable asset, and the role of Ethereum was only as a consumable gas fee, and its functions were very limited at that time.

After 2018, Ethereum has made a very big breakthrough. It has expanded the dimensions of many assets, from a simple consumable asset to an asset that satisfies three types of attributes at the same time.

  • First of all, Ethereum has the property of cash flow assets. After the emergence of Defi, the entire network of Ethereum has pledged more than 20 million. It has become an asset that can generate cash flow, which can generate interest and cash flow in a true sense.
  • With the extensive application of Defi, Ethereum has also captured a wider range of consensus and has a certain value storage feature. In the Ethereum ecosystem, ETH has become a standard asset. Aave, Maker, and even other chains can use ETH as a mortgage for usdt and us.

Ethereum's flywheel

图:《Ether: The Triple Point Asset》- David Hoffman

Therefore, after 2018, Ethereum has made a very important breakthrough, from a single consumable asset to an asset that satisfies three types of attributes at the same time.

Next, Ethereum has two key upgrades, which will further promote the three asset attributes of Ethereum as a self-growth flywheel.

  • The first is EIP-1559, which destroys the original Ethereum’s basic handling fee, improves the availability of Ethereum, and turns the inflationary assets in Ethereum into deflationary assets.
  • The second is Ethereum 2.0, which is converted from Pow to Pos to improve the security and scalability of the Ethereum ecosystem.

Ethereum’s flywheel

Ethereum’s flywheel one:

The first-level flywheel of Ethereum is Defi. From the earliest consumable asset, pure gas fee, it becomes a cash flow asset in Defi, which generates interest by staking Ethereum.

Ethereum’s flywheel two:

The second stage flywheel is EIP1559. After the upgrade of EIP1559, approximately 4 million Ethereum will be destroyed every year, further enhancing the property of Ethereum’s expendable assets. Ethereum’s annual inflation rate The annual inflation rate plummeted from 5% to 1%

Ethereum’s flywheel three:

What allows Ethereum to gather the three-level flywheel is the upcoming Ethereum 2.0 upgrade next year. Ethereum is about to change from pow topos, so it will not only be gas fee and interest-bearing assets, but also the stock of the entire Ethereum network. , Further extending the characteristics of the value store of Ethereum.

Therefore, the two upgrades of EIP 1559 and ETH2.0 are two crucial upgrades for Ethereum.

Defi makes ETH more cash flow attributes → ETH2.0 makes ETH more valuable storage characteristics → EIP-1559 makes ETH more consumable → Defi makes ETH more cash flow attributes

Since then, Ethereum has entered a positive cycle of flywheels.

1. Next year’s ETH2.0 upgrade will supplement the last link of the Ethereum flywheel, allowing Ethereum to enter the self-enhancement loop;

2. These three flywheels are automatically carried out and strengthen each other. Like a snowball, the ETH economy will spontaneously strengthen and roll bigger and bigger;

3. Once the enhancement loop of ETH becomes operational, it is irreversible. Unless an external force breaks the flywheel or one of the links is eliminated, ETH will continue to increase;

4. The power of the flywheel effect is that it cannot be defeated by simply copying one of the links. This is why the new public chain cannot rely on TPS to defeat Ethereum because ETH has formed a chain moat. Even if there are disadvantages such as expensive gas and congestion, Ethereum will still maintain its status as the king;

5. Ethereum’s TVL today is 178 billion, with a market value of 540 billion, DAU of 400,000, and MAU of 6 million. It has reached the scale of a small national economy. Today, Ethereum is an economy that is open and does not require access. In the future, Ethereum will become the largest meta-universe economy, reaching a trillion-level scale.

Posted by:CoinYuppie,Reprinted with attribution to:
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