ETH is a reserve asset
Editor's Note: This article comes fromEthereum enthusiastEditor's Note: This article comes from
Ethereum enthusiast
Introduction: I have written an article before, explaining the characteristics of ETH as an asset from three aspects-it is a reserve currency of a non-sovereign economic network. You might as well read my tweet first, you can get my point of view faster.
- Link: https://twitter.com/RyanSAdams/status/1129114658923843584?s=20 -
secondary title
ETH is a reserve asset
Reserve assets refer to assets held by banks. It provides value endorsement for other assets and can be used for inter-bank transaction settlement. The transfer of reserve assets is less difficult and has high liquidity. Sovereign bonds, currencies, and gold are all central bank reserve assets.
ETH is also a reserve asset, but not for a central bank, but for a currency agreement.
The nature of ETH as a reserve asset brings utility to the Ethereum economy.
In this regard, Vitalik said this last week:
As the reserve asset of the Ethereum ecosystem, ETH has a lot of intrinsic utility. It is the only fully trustless asset that can be used as collateral in many decentralized finance applications. This asset is a natural fit for margin. ETH is also the most convenient asset in terms of enabling payments between Ethereum applications.
ETH can be used as collateral, margin, and for transaction settlement.
The inherent utility that ETH brings to the Ethereum economy is not limited to acting as fuel or improving network security, but also stems from its own value as a reserve asset.
It all fell into place.
Although this may sound like nonsense, I will say it anyway - the value of the reserve asset is derived from itself. The higher the liquidity and the stronger the value aggregation ability of reserve assets, the more qualified they are for the role of reserve assets.
For ETH, value is its utility.
This means that the price of ETH is the bandwidth of the economy.
secondary title
The price of ETH is the economic bandwidth
Think DAI.
DAI is a synthetic asset pegged to the U.S. dollar and backed by ETH as a reserve asset — an ETH bond issued by the Maker Currency Protocol. This is largely analogous to gold-backed bonds issued by banks, or dollars convertible into gold.
Currently (September 20, 2019), $316 million worth of ETH is locked in CDPs, minting $86 million in DAI.
This means that 1.3% of the current total issuance of ETH is used as a reserve asset to endorse DAI.
But suppose the ETH network is worth 1/50th of what it is today, which is $446 million (2016 levels) instead of $22 billion. If you want to obtain DAI worth 86 million US dollars at the same pledge rate, you need to pledge 70% of the total issuance of ETH; in this case, the value of DAI is unlikely to exceed 100 million US dollars, it can only become a high-quality currency, but There will be no world influence.
What if the network value of ETH was 50 times what it is today? In other words, the value of the ETH network has reached 1.1 trillion US dollars, and the price of each ETH exceeds 10,000 US dollars. In this case, if 30% of the current total circulation of ETH is pledged at the same pledge rate, the total value of DAI will exceed $100 billion-reaching the threshold of becoming a world currency.
Do you know what I mean?
If the price of ETH increases, the economic bandwidth available to the currency protocol will also increase. It's like the difference between dial-up and fiber-optic -- only for money.
Value brings utility.
secondary title
ETH is the only option
You're bound to complain that this is so stupid. Why not use other tokenized sources of value as collateral, such as DAI? Tokenized U.S. dollars, real estate, sovereign bonds, and even BTC look a little more plausible.
- Looking closely at what Vitalik said, ETH is "the only fully trustless asset that can be used as collateral". He was right. ETH is the only reserve asset on Ethereum that is not dependent on another trusted asset. It is also the only reserve asset that is settled entirely on-chain — a digital bearer instrument.
- Let’s take a look at a few other types of reserve assets:
- USDC: settlement according to law / need to trust Coinbase
- Tokenized real estate: legal settlement / confiscated physical objects / need to trust the issuer
- Tokenized Sovereign Bonds: Settlement by Law/Trust Issuer
- wBTC: On-Chain Settlement / Trust BitGo
- tBTC: on-chain settlement/trust oracle/still needs ETH as collateral
- Current version of ETH:ETH: on-chain settlement/trust-freeYes, there is a need for less trust-free assets in the market, there is no question about that. However, if you want a pure trustless reserve asset built on Ethereum — more like native BTC than tokenized collateral — then ETH is irreplaceable.
ETH is your only option and the best option.
secondary title
Internet of value
secondary titleInternet of valueLet’s talk about DAI again. ETH can not only act as a reserve asset. Almost all currency protocols use ETH as their reserve asset in some way. Uniswap uses ETH as a highly liquid trading pair. Compound uses ETH as a reliable source of collateral.Do you remember the idea that people all over the world could create and broadcast their own TV channels? Did you feel weird at first?
This is the power of the Internet of Value.
secondary title
Currency LEGO as a store of valueMy friend David Hoffman coined a term called money legos to describe the composability of ETH-based money protocols. That is to say, combine currency functions with codes to create some currency terms to complete some currency operations. Like Lego.- Link: https://twitter.com/RyanSAdams/status/1164225926269427717?s=20 -The most important piece of currency LEGO is the one at the very bottom. Putting together programmable store-of-value Lego, you can create trustless stablecoins, exchanges, money markets, and synthetic assets.ETH - The reserve asset of the Ethereum economy.
ETH - Currency Lego with store-of-value capabilities.
secondary title
Long road ahead...
ETH is also highly volatile. While this is expected in the early days of commodity currencies, it is challenging for systems built on top of ETH. Systems like Maker help maintain the stability of ETH, and I look forward to seeing more and more ETH in the form of DAI (DAI is just a stable ETH after all) as a reserve asset.
Put the problem aside for a moment, if you pay attention, you will notice. There are already signs of using ETH as a reserve asset for ICO financing. Today, you can clearly see this from the use of ETH in DeFi protocols: ETH is gradually becoming a reserve asset before our eyes.
secondary title
road to money
Vitalik mentioned this at the end:
ETH's path to becoming [currency] is different than BTC's, but the path is still...
- That's where the conversation ends abruptly, but I think what he's trying to say is "it still works."
- This sounds a lot like the "A Tale of Two Currency Systems" article published last week. I think so. ETH’s path to becoming a global reserve asset goes something like this:
- Phase 1: ETH becomes the reserve asset of the Ethereum economy
- Phase 2: ETH becomes the reserve asset of the crypto-economyPhase 3: ETH becomes the reserve asset of the world economyWe are currently between phase one and two. When large financial institutions and central banks start to buy ETH and ETH bonds in large quantities, it means that we have entered stage three.There is a good chance that ETH will never make it to Phase 3, but it does have a chance. If ever there is one day, it will be because of ETH's primary advantage - as a reserve asset for a thriving Ethereum economy.The value of ETH as a stage one reserve asset is trillions of dollars.
