Now that Ethereum has switched to proof of stake what exactly could that mean? Lets talk about some of the implications it could have for ETH Liquidity.
Proof of stake coins have a potential advantage when it comes to its existing supply. Holders are incentivized to continue to hold! The way POS (proof of stake) operates is participants are required to hold “X” amount of coins, and stake them to earn rewards (typically in the form of the native token). This essentially means that tokens are Locked up and temporarily removed from existing supply.
Currently (May 23) only about 15% of ETH is staked (~18M ETH). This means 15% of the supply has been removed from exchanges, or the overall market. Placed in wallets and staked. This removal of 15% is on top of an already substantial amount of ETH that was burned post EIP-1559 (2.8m and growing as of Jan 23)
In fact this burning effect has turned ETH deflationary as more supply is lit on fire than is produced!
This is even after including the ~4% inflation
that is given to stakers as reward
for locking up their tokens.
ETH Liquidity turning deflationary?
So what could be some outcomes from Eth turning deflationary, locking up supply, and setting supply ablaze? Well if you remember anything from Econ 101.. Less supply but equal demand will result in higher price… and with increased demand? well that’s where things go parabolic.
With less supply on the market your order book gets thinner and thinner. Fomo or IRL demand would tear down the walls and send price searching for new price discovery. Higher prices are great for holders but there’s something else that could be a byproduct as well.
Flatten The Curve
Real world demand (whether for use case or staking rewards) could flatten the curve, making the massive pull backs we see in crypto much more subdued. It’s one of the reasons i think the BNB chart looks so much better than many of the others.
Typically, as the Alt or crypto cycle ends you see massive pull backs, sometimes retracing close to 100% of the gains. With tokens that have strong utility like BNB however, those pull backs don’t seem to be as wild… (for crypto at least). Resulting in a pullback that finds a supporting floor much higher than before.
With all the changes that have happened to ETH in the past yearish its important to take notice. Many times, Law, Rule, or fundamental changes are opportunities to be early to the game.
To see the future before the effects become evident. To capitalize on being in the know. To pay attention to Fundamentals as well as Technicals.
What are your thoughts on the ETH change to POS, EIP 1559 burning, and what may transpire? Are you planning to stake your ETH? Let me know your thoughts below as I welcome the dialogue and debate.
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