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1/ Ethernomics 102
Previously we learned Ether is the reserve currency of an economic network called Ethereum, as USD is to the US
But in many ways, Ether is more like a monetary metal than like a fiat currency
Previously we learned Ether is the reserve currency of an economic network called Ethereum, as USD is to the US
But in many ways, Ether is more like a monetary metal than like a fiat currency
2/ What about Ether supply?
Supply of fiat currencies like USD are subject to the policies of central banks, making them a tool of nation-state politics. Need to reduce unemployment, increase GDP, or stimulate markets? Issue fiat. Can’t pay off the fiscal policy debt? Issue more
Supply of fiat currencies like USD are subject to the policies of central banks, making them a tool of nation-state politics. Need to reduce unemployment, increase GDP, or stimulate markets? Issue fiat. Can’t pay off the fiscal policy debt? Issue more
3/ Ether on the other hand is a non-sovereign money. Ether supply is impervious to the whims of politics, instead ether scarcity is backed by social consensus implemented by algorithm. Like gold, a unit of ether is a bearer asset, not debt on the balance sheet of a nation-state
4/ More precisely, annual issuance rate of Ether is around 4.5% per year.
Last yr it was 7%. Two yrs ago it was 14%. With security upgrades planned for 2021/22 issuance will drop to around 1% where it will remain in perpetuity
(USD supply grew from $100b to $19.2t since 1970)
Last yr it was 7%. Two yrs ago it was 14%. With security upgrades planned for 2021/22 issuance will drop to around 1% where it will remain in perpetuity
(USD supply grew from $100b to $19.2t since 1970)
5/ Why no supply hard cap?
Ether issuance is the primary way the Ethereum economy pays for its security. Without security, assets on Ethereum could be double-spent at a low cost
For the most part, issuance = security budget
Ether issuance is the primary way the Ethereum economy pays for its security. Without security, assets on Ethereum could be double-spent at a low cost
For the most part, issuance = security budget
6/ Since it’s unclear that any blockchain can secure itself w/o supply issuance, Ethereum is taking a conservative approach by not setting a hard cap on its security budget
Ether issuance is the minimum necessary to secure the Ethereum economy
Ether issuance is the minimum necessary to secure the Ethereum economy
7/ Is Ether a store-of-value?
Ether’s issuance schedule & reserve currency status make it the primary store of value (SOV) of the Ethereum economy
Ether’s issuance schedule & reserve currency status make it the primary store of value (SOV) of the Ethereum economy
8/ Having a SOV base money is essential to bootstrap this economy. Bank protocols like Maker tap into Ether’s SOV properties to create permissionless credit systems & collateralized stablecoins. Exchange protocols like Uniswap use Ether as a highly liquid base pair for trades
9/ Just as nation-states bootstrapped their economies with gold and silver, the Ethereum economy is bootstrapping itself through the SOV properties of Ether
10/ Like USD, Ether is the reserve currency for an economy. But unlike USD, Ether’s supply isn't subject to inevitable inflation that comes w/ nation-state politics. This makes Ether a monetary base for the financial protocols & economic activity of the Ethereum economy
