Ethereum is making the headlines this week as the highly anticipated Merge is deployed on Ropsten for final testing phases. The future of the network and underlying asset after this event will put it in a unique position.
Ethereum’s security and monetary model could make it the most unique asset on Earth after the merger. That’s according to Ethereum analyst ‘@econoar’ who looked at the post-merger numbers and network economics.
ConsenSys co-founder Joe Lubin first mentioned Ethereum’s supply and issuance properties in 2014 when he described it as a “disinflationary currency.”
The balance comes with network security which will soon be governed by staking. There must be enough reward for stakers to keep securing the network. Currently, around 4.8 million ETH is issued every year under proof of work, representing the cost of securing the network, the researcher noted.
Ten years in the making
The introduction of EIP-1559 in August 2021 was a revolutionary step to bring down issuance inflation by burning some of the network fees. At the time inflation was around 4%, today it is 2.8% but often falls below that when more ETH is being burnt.
The move to proof-of-stake, which could take place as early as August, has been a focus of the Ethereum community since its launch. “It’s much easier to calculate the needed ‘security budget’ under proof-of-stake, because stakingrs set up ETH itself to secure the network,” the researcher noted.
With 12.8 million ETH currently staked, it will be paying out around 600,000 ETH per year, instead of 4.8 million under the current PoW model – which is around “88% less in sell pressure,” he added. On top of that, stakers are currently earning around 4.3% APY.
A simulated merger situation calculates that Ethereum issuance will decrease by 1.3% per year for the time being. This is a dynamic number that will increase (decrease in terms of ETH supply) in times of high demand as more fees are burned.
“This security model has been 10 years in the making, over countless discussions among community members. ETH will soon be deflationary while the network is sufficiently secure.”
The question has been asked if there is another deflationary asset that pays 4-5% per year and is completely secure – there doesn’t seem to be one that makes Ethereum quite unique.
ETH price outlook
At the moment, nothing is reversing the crypto market downtrend with more red across the boards. Ethereum has fallen marginally on the day to trade at $1,792 at the time of press.
ETH has consolidated over the past fortnight, but has fallen 23% over the past month and is now 63% off its November peak.
In all likelihood, ETH prices will fall further if a ‘capitulation wick’ flushes out the last of the weak hands as it has done in previous bear markets.
