The Ethereum Token Economy in the Post-London Upgrade Era

EIP-1559 is just the beginning

The London upgrade of Ethereum was completed on August 4, which included the famous EIP-1559. Since the launch of EIP-1559, in less than 4 days, 16,230.38 ETH has been burned (as of writing), worth close to 50 million US dollars. When the real ETH was burned, people finally felt the burning energy of EIP-1559 and saw that a large amount of ETH was burned every day.

The Ethereum Token Economy in the Post-London Upgrade EraThe total amount of ETH burned after the launch of EIP-1559, Ultrasound.money

Of course, only EIP-1559 cannot cause deflation of ETH. The current daily increase of ETH is about 13,000, and the amount of ETH burned by Ethereum on the first day after the launch of EIP-1559 is 4791.5. EIP-1559 reduces the rate of new ETH by about 30% (Of course, the amount of ETH burned will also change according to the usage of the network, here is just a rough estimate based on the current situation)

The Ethereum Token Economy in the Post-London Upgrade EraThe amount of ETH burned on the first day after the launch of EIP-1559, etherchain.org

Blue Fox Note also mentioned in the previous article “EIP-1559 and the Road to Ethereum” that in the next six months or so, Ethereum will have three important things. Among them, the most influential one is the integration of POS. It will affect Ethereum and ETH. The impact will far exceed EIP-1559, that is to say, EIP-1559 just opened the curtain, the drama is still on the way. The integration of PoS will directly change the nature of ETH.

PoS integration is the big picture

The concept of the halving effect comes from Bitcoin’s halving every four years, and each halving results in a sharp drop in its new issuance. When the amount of new additions drops while the amount of demand remains the same or rises, it will push up the price.

The Ethereum Token Economy in the Post-London Upgrade EraThe image display of the BTC halving effect comes from MoonCapital

This has been proven many times in the history of Bitcoin. Nowadays, some people in the Ethereum community have also applied the concept of halving effect to Ethereum, and compared to the halving of btc, it is three times halved. So, how to understand the concept of Ethereum’s triple halving?

Triple halved

At present, the annual ETH issuance rate is about 4%, and more than 4.6 million ETH are newly added every year, with an average daily increase of about 13,000. Assuming that PoS is newly issued 0.4% (depending on the pledge rate), the average daily increase Approximately more than 13,00 ETH. In other words, according to the current daily increase of 13,000 ETH, after the halving, it will be 6,500 ETH, the second halving will be 3,250 ETH, and the third halving will be 1,625 ETH. From 13,000 to 1,625, a total reduction of 87.5%, which is close to a reduction of 90%, which is roughly equivalent to a three-fold halving. (Note: The specific numbers here are not exact numbers. Depending on the specific situation, there will be a certain fluctuation, mainly to illustrate the magnitude)

When the number of newly added ETHs per day is only about 1,625, even today’s daily burnout exceeds this daily increase, which will cause ETH to enter a state of deflation.

The total amount of BTC is constant and will not be deflationary. With the arrival of PoS, ETH has a high probability of entering a state of deflation. This causes ETH to become increasingly scarce. It can also be seen from here that the economic mechanisms of BTC and ETH are different.

Of course, it needs to be emphasized that it is impossible to judge who has better economic policies here. From the perspective of long-term ecological development, deflation is not necessarily a good thing. Whether an increasingly scarce ETH is a good thing is still uncertain. This requires a dialectical approach.

However, only from the perspective of supply and demand, this will lead to increasing demand for ETH, and the reduction in supply will bring pressure and cause the value of ETH to rise. A deflationary ETH will face increasing demand competition. This competition not only comes from the lock-in of DeFi, but also comes from the pledge demand of PoS.

PoS pledge

As of the time of writing, it has only been more than 8 months. The amount of ETH deposited in the ETH2.0 pledge contract is as high as 6,548,125 ETH, which accounts for about 5.6% of the total ETH.

The Ethereum Token Economy in the Post-London Upgrade EraThe growth trend of the amount of ETH deposited into the ETH2.0 pledge contract, beaconcha.io

With the subsequent integration of PoS and the migration of miners, it is expected that the pledged PoS will increase significantly. In the future, the ETH deposited in the ETH2.0 pledge contract has a chance to reach more than 20-30 million, or even higher, accounting for more than 20% of the total ETH. (Note: This is only an estimate, not a reality)

In this case, a large amount of ETH will be removed from the circulation market. One is that real ETH is burned every day, and the other is that more and more ETH enters the pledge contract of ETH2.0 to earn money. Take the income of ETH.

DeFi lock

At present, more than 9.5 million ETHs are locked in DeFi, which is more than 8% of ETH circulation. It is expected that the ETH locked in DeFi will soon exceed 10 million.

The Ethereum Token Economy in the Post-London Upgrade EraThe amount of ETH locked in DeFi, DeFiPulse

With the development of subsequent DeFi agreements, especially the continued development of lending, DEX, derivatives and other fields, the demand for ETH in the DeFi field is also gradually increasing. In the future, the demand for ETH in the DeFi field may also exceed 20 million. (Note: This is only an estimate, not the reality of what happened)

Then, in the future, PoS+DeFi will probably lock in close to 40-50% of the ETH in the market, or even a higher proportion, and the daily new issuance may be less than the daily burnt amount. Even if the locked amount of PoS+DeFi remains the same, there will be less and less ETH circulating in the entire market.

ETH moving towards deflation is a high probability event

If the Ethereum PoS integration is smooth, under this premise, considering the decline in its annual new issuance rate and the amount of ETH burned, ETH has a high probability of going to deflation, and deflationary ETH will be extremely important to its supply and demand relationship. Impact. At the same time, the PoS mechanism has led to an increase in the demand for staking of ETH, and the demand for ETH in the DeFi protocol is also increasing. In the next six months, ETH may be a completely different ETH.

Of course, future policy changes may have some adverse effects on PoS, but in the long run, if this effect is only to reduce its rate of return, it is not to prevent it from existing. Then, from this perspective, although it will face resistance, But the trend will continue.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-ethereum-token-economy-in-the-post-london-upgrade-era/
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