The skyrocketing gas fees on the Ethereum network were a major highlight during the cryptocurrency’s journey last year. This is undeniably a turning point for many. However, it also highlights growth in user base, while creating space for the ecosystem to expand, through the proliferation of some promising new layer 1 blockchain networks such as Solana and Avalanche.
Despite this, Ethereum has laid out a plan to transform itself into a deflationary network, in order to solve many of its problems. This was made possible through the introduction of the Beacon chain last year to allow staking of Ether, which, together with the issuance of EIP-1559, ushered in the writing mechanism into the system.
But is it too late for Ethereum in the face of new age blockchains or is its monetary policy different from that issued by competing L1s?
Ethereum's monetary policy has been designed in a way that "allows it to be sustainable while also driving value back to ETH holders," said Anthony Sassano, the network's proponent in a recent podcast. note. This will be done by minimizing the amount of value wasted on the network, by cutting the fees of miners, who Sassano believes are currently overpaid.
The issuance rate for ETH is also expected to decrease once the transition to ETH 2.0 is complete, along with an increase in the number of burns. Combining these can lead to a deflationary effect on the total amount of the network, ensuring that holders and generating better returns on their investments, according to Sassano, who added,
“Even with perpetual perpetual issuance with no hard cap, you still have net deflationary ether and you still have a safety net because validators are fee-independent.”
This will be in contrast to Bitcoin miners whose block rewards decrease with each halving and who have difficulty mining new blocks due to the low transaction rate on the BTC network compared to Ethereum, Sassano said. .
“The only thing you can do on the bitcoin network is trade BTC, there is not much need to do that… Whereas in the Ethereum layer you have a million reasons to transact on the network and that is reflected in the fee amount collected. ”
Validators are not the only ones to profit from Ethereum's transition to PoS, as the scorers themselves are set to achieve higher yields on their ETH. This is also bullish for the network according to Cyrus Younessi, a DeFi trader. In the same podcast, he notes,
“When an asset suddenly starts earning 20% more, that inevitably starts to move a fake carry trade right where people will borrow or invest from other capital assets and pour into ETH to make money.” make profit."
The Kintsugi public test network was launched by Ethereum last week and it is one of the last to be released before the network fully transitions. It is supposed to reinvent the post-merger ecosystem, allowing users to experiment with various DeFi tools and other technical aspects of it.