EIP-1559 is scheduled to go live this week and I still see a lot of wrong takes on its impact. Remember:
- It doesn't make $ETH deflationary by default.
- It doesn't reduce $ETH supply by 90%, referred as "triple halving".
- It's still very bullish for $ETH.
Why? 🧵👇
- It doesn't make $ETH deflationary by default.
- It doesn't reduce $ETH supply by 90%, referred as "triple halving".
- It's still very bullish for $ETH.
Why? 🧵👇
1)
EIP-1559 is one of the most important upgrades in Ethereum's history. Its purpose is to improve user experience on #ETH by changing how transaction fees are estimated and how the network reacts to surges in usage.
EIP-1559 is one of the most important upgrades in Ethereum's history. Its purpose is to improve user experience on #ETH by changing how transaction fees are estimated and how the network reacts to surges in usage.
2)
It doesn't lower gas fees in the long run because it's not a scalability improvement. However, it may help users not overpay for transactions due to a better fee estimation process. It also smooths out gas prices between blocks thanks to variable block sizes.
It doesn't lower gas fees in the long run because it's not a scalability improvement. However, it may help users not overpay for transactions due to a better fee estimation process. It also smooths out gas prices between blocks thanks to variable block sizes.
3)
What everyone is excited about is $ETH burn. After EIP-1559 part of the transaction fee is burned and removed from circulation. But it doesn't mean that ETH immediately becomes a deflationary asset. For that to happen ETH burned must be higher than ETH issued in block rewards.
What everyone is excited about is $ETH burn. After EIP-1559 part of the transaction fee is burned and removed from circulation. But it doesn't mean that ETH immediately becomes a deflationary asset. For that to happen ETH burned must be higher than ETH issued in block rewards.
4)
Under the current proof-of-work (PoW) model ETH's issuance is quite high (~4% of the total ETH supply annually). To offset this issuance rate by $ETH burn after EIP-1559, we would need ~150 gwei consistently. We have seen this before but it's unlikely to sustain.
Under the current proof-of-work (PoW) model ETH's issuance is quite high (~4% of the total ETH supply annually). To offset this issuance rate by $ETH burn after EIP-1559, we would need ~150 gwei consistently. We have seen this before but it's unlikely to sustain.
5)
The situation changes dramatically when Ethereum is fully upgraded to proof-of-stake (PoS) consensus algorithm. It will lead to a large drop in ETH issuance rate to ~0.4% annually. This issuance reduction of 90% is equivalent to 3 BTC halvings, hence "triple halving".
The situation changes dramatically when Ethereum is fully upgraded to proof-of-stake (PoS) consensus algorithm. It will lead to a large drop in ETH issuance rate to ~0.4% annually. This issuance reduction of 90% is equivalent to 3 BTC halvings, hence "triple halving".
6)
Under the future PoS model transaction fees of ~20 gwei would have to be sustained to offset ETH issuance. This is when $ETH truly becomes a deflationary asset and it's hard to imagine a scenario in which it doesn't happen.
Under the future PoS model transaction fees of ~20 gwei would have to be sustained to offset ETH issuance. This is when $ETH truly becomes a deflationary asset and it's hard to imagine a scenario in which it doesn't happen.
7)
Summing up:
- EIP-1559 will burn $ETH but not make it deflationary by default. With PoW only high gas fees can offset high issuance.
- Upgrade to PoS can be referred as "triple halving" due to a large drop in ETH issuance.
- EIP-1559 + PoS = deflationary ETH.
- $ETH = 🦇🔊💰
Summing up:
- EIP-1559 will burn $ETH but not make it deflationary by default. With PoW only high gas fees can offset high issuance.
- Upgrade to PoS can be referred as "triple halving" due to a large drop in ETH issuance.
- EIP-1559 + PoS = deflationary ETH.
- $ETH = 🦇🔊💰
Useful resources:
- Excellent explanation on EIP-1559 from @thedailygwei by @sassal0x: thedailygwei.substack.com/p/this-is-eip-…
- Ultrasound money thesis from @BanklessHQ by @TrustlessState: newsletter.banklesshq.com/p/eth-is-ultra…
- A lot of information on the #ETH proof-of-stake merge: ethmerge.com
- Excellent explanation on EIP-1559 from @thedailygwei by @sassal0x: thedailygwei.substack.com/p/this-is-eip-…
- Ultrasound money thesis from @BanklessHQ by @TrustlessState: newsletter.banklesshq.com/p/eth-is-ultra…
- A lot of information on the #ETH proof-of-stake merge: ethmerge.com
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