Ethereum is making headlines this week as the much-anticipated merge is deployed on Ropsten for the final testing phases. The future of the network and the underlying asset following this event would place it in a unique position.
The security and monetary model of Ethereum post-merger could make it the most unique asset on Earth. This is according to Ethereum analyst ‘@econoar’, who has delved into post-merge statistics and network economics.
ConsenSys co-founder Joe Lubin first mentioned Ethereum supply and issuance assets in 2014, when he described it as a “expansionary currency.”
The balance comes with network security which will soon be at stake. There should be a substantial reward for stakeholders to continue keeping the network secure. Currently, about 4.8 million ETH are issued per year under proof-of-work which is the cost of securing the network, the researcher said.
ten years in the making
The introduction of EIP-1559 in August 2021 was a revolutionary step to reduce issuance inflation by burning some network fees. Inflation at the time was around 4%, today it is 2.8%, but often falls below this when more ETH is being burned.
The change to proof-of-stake, which could happen as early as August, has been a focus of the Ethereum community since its launch. “It is very easy to calculate how much “security budget” is required under Proof of Stake, as stakeholders are putting ETH themselves to secure the network,” the researcher said.
He added that with 12.8 million ETH currently at stake, this would pay out around 600,000 ETH per year instead of 4.8 million under the current PoW model – which is “about 88% less under selling pressure”. Furthermore, stakers are currently earning around 4.3% APY.
A simulated merge position calculated that Ethereum issuance would decrease by 1.3% per year at this time. This is a dynamic figure that will increase under heavy demand (decrease in the case of ETH supply) as more charges are being burned.
“It has been 10 years in the making of this security model, in countless discussions among community members. ETH will soon be deflationary, while the network is sufficiently secure.”
This question was asked if there are any other deflationary assets that give 4-5% per annum returns and are completely safe – there doesn’t seem to be anyone making Ethereum unique.
ETH Price Outlook
At the moment, nothing is reversing the downtrend of the cryptocurrency market and there is more red across the board. At press time, Ethereum was trading marginally lower on the day at $1,792.
ETH has consolidated over the past fortnight, but is down 23% over the past month and is now down 63% from its November peak.
In all likelihood, ETH prices will fall further if a ‘capitulation wick’ pulls out the weaker hands as has happened in previous bear markets.