Soaring gas fees on the Ethereum network was a major highlight throughout crypto’s journey last year. This was undeniably a turn-off for many. Yet, it also underlined a growth in userbase, while also giving space to the ecosystem to expand, through the rise of several promising new layer-1 blockchain networks like Solana and Avalanche.
Regardless of this, Ethereum has already set a plan in motion to turn itself into a deflationary network, aimed at solving much of its troubles. This was done through the introduction of the Beacon chain last year to allow for Ether staking, along with enacting the EIP-1559 which ushered a burning mechanism into the system.
But is it too late for Ethereum in the face of new-age blockchains or does its monetary policy differ from those enacted 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,” noted the network’s proponent Anthony Sassano in a recent podcast. This would be done by minimizing the amount of value that is wasted on the network, by cutting down the miner’s fees, whom Sassano believes are currently being overpaid.
The issuance rate for ETH is also expected to go down once the transition to ETH 2.0 is completed, along with an increase in the burn amount. Combining these could result in a deflationary effect on the total network amount, ensuring that holders and stakers get better returns on their investments, according to Sassano, who further added,
“Even with constant perpetual issuance with no hard cap, you still have a net deflationary ether and you still have a secure network because the validators aren’t reliant on fees.”
This would be in contrast to Bitcoin miners whose block reward goes down after each halving, and who have a hard time mining new blocks due to the low rate of transactions on the BTC network compared to Ethereum, said Sassano.
“The only thing you can do on the bitcoin network is transact BTC, there’s not that much demand to do that… Whereas on Ethereum layer one you have a million reasons to transact on the network and that is reflected in the amount of fee revenue.”
Validators are not the only ones profiting off Ethereum’s shift to PoS, as the stakers themselves are set to experience higher yields on their ETH. This is also bullish for the network according to DeFi trader Cyrus Younessi. In the same podcast, he noted,
“When an asset all of a sudden starts yielding an additional 20%, that definitely gets into motion a pseudo-carry trade right where people will borrow or invest from other capital assets and inflow it into ETH to earn the yield.”
The Kintsugi public testnet was launched by Ethereum last week, and it is one of the final ones to be released before the network fully transitions. It is supposed to replicate the ecosystem post-merge, allowing users to test its many DeFi tools and other technical aspects.
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