The Ethereum Value Proposition: Store of Value Edition

In the same vein as last week's post regarding the overall value proposition behind Ethereum, this is an easy to understand noob- friendly follow-up focusing specifically on the scarcity and therefore store of value that is coming and is now being created on Ethereum. .

Locked up ETH The total supply of ETH is about 115 million ETH in circulation. Currently the issuance rate (new ETH being created) is about 4% or so a year (so about 4.6 million ETH give or take).

Per DefiPulse, the top 20 Dapps are currently locking up 11.2 million ETH

Per Ethereumprice.org, 3.62 million ETH is already locked up in staking.

Grayscale Trusts also currently hold 3.17 million ETH total. (calculated from their total ETHE shares outstanding x 0.01023339 ETH per share)

Between these 3 sources alone we currently have about 17.91 million ETH locked up or 15.5% of the total supply that is virtually locked up and effectively removed from circulation.

In layman's terms that means about 1 out of every 6 ETH is locked up and not for sale

Projections for ETH Lock up Growth The amount of ETH locked is only going to continue to grow, and here's why:

DEFI a year ago had less than $200 million TOTAL locked up across all dapps. Today? It has over 43 billion and growing. Thats over a 215x increase in a year (taking into account the $ increase in ETH in the past year we are looking at over a 20x in the amount of ETH locked up in DEFI). As Ethereum scales in the next few months, it will become cheaper and easier for regular people to lock up their ETH and interact more with dapps so expect this 43 billion to grow a lot more. If in the last year DEFI did over a 20x in TVL (total value locked up), expecting a 2-3x in a year from the current levels would be reasonably conservative in my opinion.

What this means is, we could could see anywhere from 22-33 Million ETH locked up in the next year or 19 to 29% of the total supply locked up in DEFI alone.

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Staking And then there is staking. To keep it short and sweet, currently the vast majority of stakers are people that have the technical knowledge/savviness to boot up their own nodes and maintain the hardware 24/7, and that number is currently sitting around 3.62 million.

Once Coinbase launches ETH 2 support (they already added the coin to their dashboard last week signaling it may be coming very soon) since Coinbase has the largest userbase for crypto, we could very easily see millions more ETH being staked in the coming months once their waitlist is live. Rocketpool is also in its final testnet and will allow people to stake just as easily as coinbase but in a decentralized way, which will be an industry first. When these 2 options go live, because in the eyes of many it will be as easy as the click of a button to get "passive income", I could easily see the 3.62 million figure double to over 7 million ETH staked.

That means conservatively over 6% of the total supply could be locked up in the coming months once Coinbase and Rocketpool are live

I am not going to speculate on the specifics of whether Grayscale's trust will grow or not, but I assume as we see growing interest across all of crypto, their fund or others like it will likely see a growing demand for ETH also.

**So if you are keeping track, taking into account the growth in DEFI, Staking, and the current levels of Grayscale, we could be looking at 32-43 Million ETH locked up in the next year.

On average, that would mean about 1 in 3 ETH would be locked up and not for sale in one year's time

(43+32)/2 =37.5/115 = 32.6% ETH locked

EIP 1559 and the ETH Burn Rate EIP 1559 is going to burn the BASE FEE of every ETH transaction effectively putting deflationary pressure on the supply of ETH.

ETH's daily transactions for 3/29/21 per Etherscan were about 1.27 Million.

Bitcoin's daily transactions for the same day were about 307,000.

That means that ETH is now processing 4x the amount of daily transactions as Bitcoin

As these transactions grow so will the amount of ETH being burned once EIP 1559 is implemented in July.

Noone knows exactly how much the BASE FEE will be that will be burned, but per Vitalik's tweet on sept 15 2019:

"Or if EIP 1559 is implemented the bulk of the txfees get burned directly”

Since it is now being implemented, we can assume conservatively that when he says the "bulk" of the transaction fees will be burned that that means at least 51%.

Some simple math can help us estimate the amount of ETH that will be burned:

Per Etherscan 03/29/21 stats:

Average Transaction Fee: $17.01

Total Transactions: 1,269,901

Total Transaction Fees on 03/29/21: $21,601,016.01

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Assuming 51% of that total would be burned : 51% x 21.6M = ~$11 Million burned daily or @ETH at 1840 about 6,000 ETH would be burned daily.

The current rate of ETH being produced daily is about 14,000 so that means we would cut the net issuance of ETH roughly by HALF in a short time AKA by this calculation EIP 1559 would be an instant halvening for Ethereum .

Full Proof of Stake And then there's the icing on the cake. On the recent Ethereum Dev Calls, the devs have said they want to expedite the Merge to full POS and it may come as early as this fall.

That means ETH will be full proof of stake with no miners and at that point ETH issuance would be under 1% annually.

That means if you combine EIP 1559's burn rate, and the move to POS, ETH issuance will be near 0 or deflationary

This stance has also been corroborated by others such as Eric @econoar in a Sept 24 2019 tweet where he says after EIP 1559 and POS "the network would be operating securely at near 0 issuance"

This is the real diamond in the rough that is not being factored in.

What this means is that once POS is live, and EIP 1559 is live, ETH will have lower inflation than Bitcoin

ETH will also have many more use cases and utility compared to Bitcoin

So what happens when you have a highly scarce asset that is also highly useful?

It doesnt take an Elon Musk to figure that one out….

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I could go on with more reasons but you get it…. ETH has a very likely and strong chance to become very scarce very quickly

So why am I telling you all this? Well Im glad you asked. Because if you liked the content for a limited time, if you are one of the first 100 users, I am selling a………no.

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I am telling you this because I believe in the Ethereum ecosystem and the decentralized future and as a young professional, I believe it is one of the most valuable opportunities in my lifetime. Thats it. Dont like it and want to call me a scammer or shill for some reason? Send a letter to my imaginary HR department. Otherwise, agree or disagree I dont care.

At the end of the day, like I said before, do whatever you want.

Hope this helps those of you who are just now learning about the space and seeing what crypto and Ethereum is all about.

Good luck and may the gains be with you.