Altcoins Talks - Cryptocurrency Forum
Cryptocurrency Ecosystem => Ethereum Forum => Ethereum News & Updates => Topic started by: Tanimariya on November 03, 2021, 03:52:08 PM
-
The combination of DeFi, EIP 1559 and Ethereum’s coming transition to proof-of-stake has worked to create what ether holders call “Ultra Sound Money.” Ethereum’s native asset was once discredited by bitcoiners and investors alike for its lack of hard monetary policy and ever-inflationary “tokenomics.” However, the combination of decentralized finance (DeFi), Ethereum Improvement Proposal (EIP) 1559 and the coming transition to proof-of-stake has worked to create what ether holders call “Ultra Sound Money.”
Ethresear.ch recently introduced multiple new models to predict the circulating supply of ether after the Merge takes place. To understand their findings and the variables involved in their models, it’s essential to know the following:
Ether is distributed to reward miners for producing blocks under proof-of-work (PoW) and, under Ethereum 2.0, will be used to reward validators for proposing blocks in proof-of-stake (PoS).
EIP 1559 introduced a deflationary mechanism to the network, creating a base transaction fee for utilizing block space on the network and then burning that fee out of existence.
Ethereum 2.0 has an adaptive yield demand curve that attempts to ensure “minimum viable issuance,” or that enough validators are working to secure the network.
Since EIP 1559 was implemented on Aug. 4, 620,000 ETH at a market value of $2.6 billion has been burned through transaction fees. Using that burn rate and the current network demand metrics, Ethresear.ch found that around 2.5% of ether’s circulating supply would be burnt annually. Under proof-of-work, the 2.5% burn only offsets a portion (~39%) of ether’s emission schedule. However, emissions fall drastically post-Merge, potentially even making the asset deflationary.
Going back to Ethereum 2.0′s adaptive yield curve, the blockchain looks to incentivize enough validators to properly secure the network and not any more. Assuming that staking yield falls around 3%, Ethresear.ch’s model predicts that the long-term supply of ether may fall anywhere between 27.3-49.5 million ETH or 23%-42% of today’s supply.
Such a reduction in supply could easily be met with the expectation that ether will be infinitely more scarce than it is today. However, the model requires assuming that demand for blockspace will stay at current levels, which is harder to predict now than ever. Alternative layer 1s continue to grow in popularity, but layer 2 systems built atop Ethereum are just getting started. Source Link
(https://www.coindesk.com/tech/2021/10/27/the-evolution-of-ethereums-monetary-policy/)