Re-understand the practical attributes of ETH: see the value of ETH from the perspective of supply and demand
Original Author: croissant
For a long time, most people regard ETH as an investment product, and believe that its price usually reflects the state of the entire Crypto industry. People regard BTC as digital gold and ETH as digital silver, emphasizing the investment attributes of ETH. However, compared to Bitcoin, the prosperity and development of the Ethereum ecosystem also makes ETH more practical.
Crypto analyst and founder of Bakery DAO, croissant, tweeted that people need to regard ETH as a practical resource, and its supply and demand relationship will determine its future trend. Rhythm BlockBeats organizes croissant's views as follows.
You need to think of ETH as a utility resource. Various transactions of more than 41 million different smart contracts on the blockchain rely on it as fuel to function properly.
And many people don't understand this yet.
I don't really care about market news, chart analysis or anything else. Why is this? Because I think the price of ETH is all about supply and demand.
Ethereum was born in 2015, and 10,000 Bitcoin addresses participating in IC0 received 72 million ETH. Over the years, these tokens have changed hands frequently, and they are now scattered among 144.7 million wallet addresses.
But, did you know that most of the ETH has not been moved for months or even years? The longer the timeline, the more obvious it will be. We can see that only 6.5% of ETH is active in the past 5 to 7 years, and only about 0.3% of ETH is active every day.
In addition, the current absorption and consumption of ETH by smart contracts is also at a historical peak. Not only do they need to consume ETH to keep going, but they often need to use ETH as collateral. This also resulted in more than 28% of ETH being locked in smart contracts.
To be sure, the circulating supply of ETH is far below consensus expectations, not to mention EIP-1559 passed. EIP-1559 introduces a deflationary mechanism for ETH, and it is expected that 3.4 million ETH will be destroyed this year, which is 2.8% of the total supply.
After that, we also have to consider stablecoins. Stablecoins are a huge disruption to the traditional model because people don't always want to convert tokens into cash. In DeFi, ETH is often used as collateral for lending stablecoins. And that seems to explain why stablecoins continue to attract billions of dollars in capital.
This becomes even more interesting when an entire digital economy takes shape within the ETH ecosystem. People can even spend millions of dollars on virtual real estate. This goes far beyond services, goods, and things that aren’t exactly “investment goods.”
Later, an upgrade to Ethereum made transaction fees go to stakers on the network instead of miners. We expect the EVM fee to be around 10,000 ETH per day. Calculated with this amount, the APR of ETH pledged reached 6.1%. After counting the issuance, our APR will reach about 11%.
As the staked APY increases, the total issuance of ETH will decrease. At present, the number of ETH issued in the form of block rewards is about 13,000 per day, and after the upgrade, the issuance of ETH will be reduced by more than 90% immediately, from 13,000 per day to about 1,000 to 2,000 per day.
The resulting impact should not be underestimated. For reference, you can imagine what would happen to Bitcoin with multiple halvings within a few months. According to the current speed, it will take nine and a half years for the circulation of ETH to reach 100 million, which is very shocking.
Another thing that is rarely mentioned is the concept known as a validator queue. This is a security mechanism in PoS that limits the number of validators that can join at any one time.
Then the flow becomes:
- merge upgrade
- Transaction fees go to stakers
- APY soars
-People rush to stake
- Queue is full
-？
After understanding these, let's not forget about those staking derivatives, which are extremely magical. Pledge derivatives represent the pledge of ETH, and the obtained ERC20 token can be traded normally, but there is usually a premium.
Pledge derivatives have brought about a very interesting interaction and brought some opportunities for investors in the secondary market. Logically speaking, the price of stETH should be higher than ETH at any time, and if the price of stETH is lower, users only need to buy stETH at a lower price to make a profit.
Conversely, if the price of stETH is higher than the current market price of ETH, users only need to deposit their ETH into Lido for pledge, and then they can sell the received stETH for a profit. And this may result in an extremely large amount of ETH being pledged.
We've talked a lot about supply, let's talk about demand. It is true that Layer 2 technology has attracted tens of millions of new users to ETH.
And, there are already hundreds if not hundreds of billions of dollars in use cases within the ecosystem today. 13,000 DApps and more than 200,000 ERC20 tokens are supported by ETH. The more Layer 2 users, the lower the cost of transactions on the main network.
This is why I think our mentality will soon change from "I buy ETH to wait for it to appreciate" to "I buy ETH because I will use it".
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