Ethereum 2.0: Bonds in the Internet Age
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Collin MyersandMara SchmiedtPublished a paper on Ethereum 2.0white paperandeconomic modelwhite paper
economic model
. They treat the pledged ETH as a kind of bond. This model helps investors understand ETH — the revolutionary internet-native asset — in terms of what is known to the masses as perpetual bonds.
It was very interesting, so we worked with them to make a great summary.
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Ethereum 2.0: Bonds in the Internet Age
Understanding its fundamental properties is a critical step in creating better valuation and product models around it. In a mature state, the rate of return of the Internet's new settlement layer can become the risk-free rate of return of a decentralized financial ecosystem, and can also be used as a benchmark for evaluating the cost of value transfer without trust. (Note, the risk-free interest rate refers to the interest rate that can be obtained by investing funds in a certain investment object without any risk. This is an ideal investment return. It is generally affected by the benchmark interest rate.)
What are Internet Bonds?
As internet bonds become more popular, creating a common and understandable terminology around the bond is important for global adoption and use.
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What are Internet Bonds?
One of the most popular blockchain protocols today is to stake assets and generate work to earn yield. This is known as "staking".
Similar to the traditional bond structure, there are many forms of pledge, but its core is the agreement between the bond issuer (agreement party) and the bond holder (verification node or entrusted node).
Let's take an example from the non-digital world.
In many parts of the world, construction professionals are required to purchase a contractor's license bond before they can legally carry out construction work. Through the contractor's license bond system, construction professionals agree to perform their work under rules and regulations designed to protect government agencies and consumers from potential financial loss.
A contractor's license bond is a form of surety bond that:
1. Principal: is the business that seeks a work permit by providing funding and agreeing to a set of rules.
2. Creditor: An entity that sets security deposit requirements according to a set of rules and guarantors.
3. Issuer: The entity that guarantees the principal obligation.
In the world of POS (Proof of stake) cryptocurrencies, pledge bonds can be seen as a type of contractor license bond. For example, Ethereum verification nodes are required to hold 32 Ethereum as collateral to register their nodes on the network, and in return the nodes obtain a "license" to support consensus operations on the chain.
In order to obtain this license, validators need to agree to abide by the rules of the network, i.e. to act honestly and guarantee to continue to operate. In return, they are regularly rewarded.
In this case, the bond is an agreement between:
4. The delegator, the verifier.
5. Right holder and issuer, namely the Ethereum blockchain.
In this example, Ethereum acts as both creditor and issuer. That is, it programmatically defines and enforces the defined rules to maintain the integrity of the network. Validators who fulfill their obligations receive incentivized rewards, while those who do not meet their requirements or behave maliciously face the risk of being punished, slashed, and/or losing their right to participate.
So what's the main difference?
Internet bondholders in Web 3.0 are capital lenders, workers, and network owners all at the same time.
Internet bonds are thus a new type of incentivized digital work protocol that, in its mature state, is best described as a perpetual bond that mixes the characteristics of bonds and equity.
Ethereum 2.0 Internet Bondwhite paper。
Due to the nature of the open-source protocol and the ever-changing nature of parts related to the phased rollout of Ethereum 2.0, Ethereum 2.0 Network Bonds behave like evolutionary assets.
A conceptual framework for better understanding, evaluating, and planning participation in the Ethereum 2.0 staking market. We released the Ethereum 2.0 protocol model built
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Specifically, this white paper focuses on the early stages of Ethereum 2.0 and predicts the possibility of Ethereum 2.0 network bonds. Focus areas include:
2. Rewards
3. Network status
Research on Behavior Model of Internet Bonds
An Overview of the Value of Ethereum 2.0 Internet Bonds
Therefore, the blueprint for the Internet bond of Ethereum 2.0 started as a deferred payment agreement. It’s worth noting that a deferred interest bond is a debt agreement that pays interest in full only when it falls due. Deferred interest instruments are often issued at a substantial discount and traded to compensate holders for deferred earnings and illiquidity during this period. Therefore, the value of the asset eventually converges to par value at maturity. (Rhythmic note, that is, the price will continue to move closer to the face value as the date approaches)
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Value of Ethereum Internet Bonds at Phase 0
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After Phase 1, the mainnet will transition to Phase 1.5, which features a gradual transfer of the Ethereum 1.0 chain to Ethereum 2.0.
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Summarize
The Value of Ethereum 2.0 Bonds in Phase 1 and Beyond
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Participating in the underlying protocol of Web3.0 means participating in a new digital protocol that provides trustless value transfer that can be used by the world between global participants and decentralized network protocols.
