, 24 tweets, 13 min read Read on Twitter
0/ We’re excited to release our “Entering The Ethereum’ report. Read it in full here! delphidigital.io/ethereum
1/ Our report is broken out into five main sections.
(i) Short-Term Outlook
(ii) Long-Term Economics
(iii) Roadmap & Scaling Solutions
(iv) Ethereum's Vision
(v) Key Risks & Mitigants
2/ Within our Short Term Outlook section, we performed a proprietary analysis on 54 of the largest token sales with help from our friends at @Bloxy_Info. We isolate the amount of $ETH that was eventually sent to an exchange using an 8 ‘hops’ deep analysis.
3/ The demand for “DeFi” services has grown substantially over the past year, primarily due to @MakerDAO $MKR (responsible for ~98% of the ETH currently locked up by DeFi). @compoundfinance and @UniswapExchange have both seen notable growth recently too.
4/ We utilize recent trends we discovered during our ICO treasury and DeFi analysis to project potential selling pressure in the near term. We've attached our key assumptions and takeaways to this tweet, but recommend you read our report for more information.
5/ The core of this report lies in the Long-Term Economics section. After gauging the economic viability of the currently proposed model for Serenity, we present adjustments we believe can help make the model more sustainable and, in turn, the network more secure.
6/ When ETH changes from PoW to PoS, network fees will continue, but the fixed block reward shifts to a variable issuance model (it’s determined by the amount of ETH staked, where incremental issuance will increase at a decreasing rate as more of the overall ETH supply is staked)
7/ Taking a look at the current base validator yields based on the amount of network fees/day and total $ETH staked, it’s easy to see that the yields look low. Establishing a yield that’s attractive for more than just initial validators will help secure the network.
8/ We believe the dependence on network fees is a result of the currently proposed block rewards being too low. The chart below shows what portion gas fees make up of total rewards. It’s clear how total rewards (particularly on higher yield side) really depend on the fee market.
9/ To take it a step further, we look at expected net yields (both hardware & cloud based setups). Main takeaway here is that at current price levels & proposed Serenity specs, it’s likely that altruistic & malicious validators will be the only ones with a reason to participate.
10/ The net yield for validators is among our main concerns for Ethereum’s long-term viability. To be a dominant smart contract protocol, security must be one of its strongest features. In our proposed model, a marginally higher inflation rate leads to a more attractive net yield
11/ Our opinion is that the currently proposed model focuses too much on the long term dilutive effects of a high issuance rate, potentially at the cost of near term sustainability. We propose that Serenity’s block reward starts off at a higher level and then gradually tapers off
12/ This is where the Base Reward Quotient from earlier comes into play. Rather than using a fixed quotient of 1024 in perpetuity, we begin with a Base Reward Quotient of 128, and double it every 5 years until the year 2036 where it reaches 1024.
13/ Our proposed change helps shift early revenues to be block reward heavy. This provides the network a significant buffer before it has to truly rely on a fee market to develop to support validators. This is illustrated in the charts below by showing gas as a % of total rewards
14/ Two criticisms of our proposal will likely be the impact of increased issuance & the dynamic policy changes over time. In relation to the concern that the monetary policy will shift over time, we believe predictability is arguably more important than actual issuance change.
15/ The chart below depicts potential supply trajectories (top) and issuance rates (bottom), with the grey area representing the range of our proposal & blue lines = upper & lower bound of existing proposal. Arrows represent a reasonable max difference of 31M in potential supply.
16/ In our Roadmap & Scaling Solutions section, we open with a high level overview of Ethereum’s roadmap and history before diving into how the network plans to transition to Serenity.
17/ In Ethereum’s Vision, we look at what issues currently exist with the internet. At the core of Web 3.0, is the goal of empowering its users by allowing them to control their data, protect their privacy, & ultimately ensure their freedoms through an open, uncensorable network.
18/ After taking a look at some key Technical Risks we identified, we focus on four main long-term value concerns throughout our Key Risks & Mitigant section. This includes (i) competition, (ii) store of value critiques, (iii) high velocity dampening price, and (iv) PoS security.
19/ While putting together this report, we had a lot of additional analysis we thought would be worth including. Our Appendix spans from correlation / price momentum analysis to us highlighting prominent ETH 2.0 developers (@VladZamfir @karl_dot_tech @drakefjustin @dannyryan).
20/ One piece we were excited to include in our report’s Appendix was analysis around the distribution of #Ether. Thanks to our friends at @glassnode, we were able to see that over 50% of addresses have less than 0.001 $ETH (~$0.13) and only ~25% of addresses have over $1.
21/ As we mention in our report, the purpose of this report was to spark a greater discussion about the future of Ethereum. Thank you to everyone who provided insight incl. @Bloxy_info @TheTIEIO @glassnode @TetrasCapital @tehoban1. We'd love to hear your thoughts @VitalikButerin
22/ Disclaimer: It is important for us to stress that nothing in this report is intended to be taken as investment advice of any kind. Everyone should do their own due diligence before making any investment decision.
23/ We appreciate you all taking the time to read our work. Feel free to follow us: @mediodelphi @yanliberman @anildelphi @Kevin_Kelly_II @Shaughnessy119. You can read the full report here & please don’t hesitate to reach out to our team with any feedback! delphidigital.io/ethereum
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