Is ETH no longer ultra sound money?🦇❌🔊
(5-min read)
August is on track to be the worst month in terms of fees generated on Ethereum mainnet since early 2020.
Since blobs went live in March, L2s no longer pay any meaningful fees to Ethereum and ETH holders.
Significant activity has moved from mainnet to rollups but most of the value is captured on the execution layer by the L2s.
As a result, ETH has become net inflationary (~0.7% yearly) which means that inflation outweighs the burn.
With the ETH price lagging behind, this has caused concern amongst ETH holders as the ultra sound narrative no longer bears much substance.
Should you be concerned?
Looking beyond the narrative, we can consider the recent change in flows for ETH.
The variables impacting the supply dynamics of ETH:
--------
• Base fee
• Blob fee
• Priority fee
• MEV
• ETH emissions
--------
Blob fees and base fees are burned and therefore benefit all ETH holders. (Blob fees are $0 most days however).
The priority fees and MEV go to validators/stakers and is therefore only captured by ETH stakers via the staking yield.
ETH emissions also flow purely to stakers and is captured via the staking yield.
Non-staker flow
As a non-staker, you receive the blob & base fees indirectly via the ETH burn but don't capture any of the priority fees or MEV.
Additionally, the ETH emissions have an inflationary (negative) impact as these flow to other actors (stakers/validators).
The chart below shows the YTD flows for non-stakers:
Net flow went negative/inflationary (emissions > burn) just around the time of blobs being introduced.
Note: in reality emissions are slightly more complex as we here are assuming all ETH emissions to validators are sold, which is not necessarily the case.
Staker flow
As an ETH staker, the flows look different.
All the fees are captured, either via the burn or via the staking yield.
ETH emissions have a net impact of 0 as they dilute the supply but also flow to you (minus validator commission).
As you can see below, the flows look very different when staking ETH.
Still, the fees flowing to stakers are down >90% since earlier this year.
Conclusion
Ethereum no longer carries the ultra sound money narrative which is probably for the better.
The high $100 tx fees on mainnet were never sustainable and the network is now more usable (when perhaps disregarding the fragmentation of L2s).
As a non-staker, you are net inflated by ~0.7% yearly. But this is orders of magnitude lower than other L1s like Solana, Avalanche etc.
Fees amongst infra are generally trending to 0. A potential solution could be Ethereum charging L2s more $ but is not great from a competitive standpoint.
Zooming out, infra-layers are in general unprofitable (study Celestia generating ~$100 in daily revenue), especially if viewing inflation as a cost.
Ethereum is no longer an outlier with a net deflationary supply and, like other infra-layers, require another way to be valued.
I'll stop for now cause the post is getting too long. Maybe some day there'll be a path to profitability while maintaining low fees?
(5-min read)
August is on track to be the worst month in terms of fees generated on Ethereum mainnet since early 2020.
Since blobs went live in March, L2s no longer pay any meaningful fees to Ethereum and ETH holders.
Significant activity has moved from mainnet to rollups but most of the value is captured on the execution layer by the L2s.
As a result, ETH has become net inflationary (~0.7% yearly) which means that inflation outweighs the burn.
With the ETH price lagging behind, this has caused concern amongst ETH holders as the ultra sound narrative no longer bears much substance.
Should you be concerned?
Looking beyond the narrative, we can consider the recent change in flows for ETH.
The variables impacting the supply dynamics of ETH:
--------
• Base fee
• Blob fee
• Priority fee
• MEV
• ETH emissions
--------
Blob fees and base fees are burned and therefore benefit all ETH holders. (Blob fees are $0 most days however).
The priority fees and MEV go to validators/stakers and is therefore only captured by ETH stakers via the staking yield.
ETH emissions also flow purely to stakers and is captured via the staking yield.
Non-staker flow
As a non-staker, you receive the blob & base fees indirectly via the ETH burn but don't capture any of the priority fees or MEV.
Additionally, the ETH emissions have an inflationary (negative) impact as these flow to other actors (stakers/validators).
The chart below shows the YTD flows for non-stakers:
Net flow went negative/inflationary (emissions > burn) just around the time of blobs being introduced.
Note: in reality emissions are slightly more complex as we here are assuming all ETH emissions to validators are sold, which is not necessarily the case.
Staker flow
As an ETH staker, the flows look different.
All the fees are captured, either via the burn or via the staking yield.
ETH emissions have a net impact of 0 as they dilute the supply but also flow to you (minus validator commission).
As you can see below, the flows look very different when staking ETH.
Still, the fees flowing to stakers are down >90% since earlier this year.
Conclusion
Ethereum no longer carries the ultra sound money narrative which is probably for the better.
The high $100 tx fees on mainnet were never sustainable and the network is now more usable (when perhaps disregarding the fragmentation of L2s).
As a non-staker, you are net inflated by ~0.7% yearly. But this is orders of magnitude lower than other L1s like Solana, Avalanche etc.
Fees amongst infra are generally trending to 0. A potential solution could be Ethereum charging L2s more $ but is not great from a competitive standpoint.
Zooming out, infra-layers are in general unprofitable (study Celestia generating ~$100 in daily revenue), especially if viewing inflation as a cost.
Ethereum is no longer an outlier with a net deflationary supply and, like other infra-layers, require another way to be valued.
I'll stop for now cause the post is getting too long. Maybe some day there'll be a path to profitability while maintaining low fees?
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