The great change of the Ethereum economic system: from DeFi pledge to burning mechanism to POS mechanism

Ethereum emerged as the biggest dark horse in the last bull market with smart contracts and ICOs. However, as the public chain competition represented by EOS and the ICO tide faded, Ethereum returned to the flat in the bear market. Last year’s hot DeFi once again pushed Ethereum to a climax. Recently, after the upgrade of Ethereum EIP-1559, Ethereum has truly gone on the road of deflation.

Why is EIP-1559 so important:

The biggest change in Ethereum in this upgrade is the emergence of a “burning mechanism”. The deflation mechanism is introduced into the Ethereum network for the first time. To put it simply, every transaction in Ethereum will destroy a certain amount of Ethereum. The larger the transaction on the blockchain, the more Ethereum will be destroyed. According to reports, since the activation of the Ethereum Improvement Proposal (EIP) 1559, the Ethereum network has been removed from circulation or “destroyed” more than 5000 ETH, worth about 14 million U.S. dollars, accounting for the total amount of new currency issued during the same period. 36% of the total. This amount of destruction is very staggering. With the expansion of the Ethereum ecosystem, the amount of Ethereum destroyed will continue to increase, but at the same time, the income of Ethereum miners will decrease. The burning mechanism of Ethereum is to compete with miners for the profit cake, paving the way for the transformation of Ethereum from POW to POS.

EIP-1559 changed the gas fee calculation logic based on the first price auction. The first auction is the one with the higher price. In order for the miners to pack their transactions in time, users need to pay the miner’s fee. The higher the bid, the greater the probability of being packaged first, which will cause unlimited growth of the gas fee to a certain extent. For EIP-1559, user transactions need to pay a fixed “basic fee”. If you want miners to give priority to processing, you can add a “tip”, which is the so-called “priority fee”.

Ethereum POS mechanism

The future development direction of Ethereum is to change from POW mining to POS mining, completely saying “bye bye” to energy consumption, which is what we often call Ethereum 2.0. After Ethereum 2.0, Ethereum miners are nothing more than gaining revenue, but they can staking Ethereum for mining and become a validator node running ETH2.0, thereby gaining revenue. This is the same principle as other POS currency nodes verifying transactions and obtaining benefits. But there is a fundamental difference. The threshold of Ethereum 2.0 nodes is low. Anyone can participate in pledge mining as long as they hold Ethereum. It is not like other public chains that only need a few, more than a dozen large nodes, and want to become a node. Need to hold a lot of coins. The lowering of the threshold will allow more people to participate in pledge mining. Ordinary retail investors are not just waiting for the price to rise to make a profit, they can also make a profit through pledge mining. Ethereum 2.0 will make Ethereum more decentralized, and the user experience and participation will be higher, avoiding the threat of “single point of failure” to a certain extent.

DeFi pledge mining

DeFi pledge mining is easy to understand, that is, you put Ethereum in a DeFi project pool to get a certain amount of income. The more DeFi projects based on the Ethereum network, the more Ethereum is pledged. At present, the total amount of staking in Ethereum is about 1.1 million, which is close to 10% of the circulation.

The great change of the Ethereum economic system: from DeFi pledge to burning mechanism to POS mechanism

DeFi pledge mining is of great significance to Ethereum, and it is also an important point that distinguishes Ethereum from Bitcoin. Bitcoin is digital gold, a store of value, and the hegemon of the currency circle, but Ethereum is the most useful public chain. The presence.

The Ethereum DeF pledge, the Ethereum burning mechanism, and the Ethereum 2.0 pledge mining can all accelerate the deflation process of the Ethereum, so that the circulation of the Ethereum is continuously reduced, the demand continues to increase, and the value of the Ethereum is constantly assigned. This is also the place where many public chains learn Ethereum, just like the deployment of smart contracts in various public chains.


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