The long-awaited Ethereum 2.0 is drawing closer and a lot of expectations has been drawn towards what might likely be the outcome of the network upgrade.
Metacartel Ventures partner, Adam Cochran, has conducted in-depth research into Ethereum’s economic potential and how the next iteration of the platform could be a game-changer. Adam’s made this known via series of tweets. Below are is exact tweets:
“Ethereum 2.0 is only a few months away, and could prove to be the largest economic shift in society for a few key reasons. Here is my 7 economic cases for how ETH will preform with the ETH 2.0 rollout.
Reason 1: Rent Seekers Large investors eye stable returns around 3% – 5%, due to the scale of their principal. This is why traditional investments shift to below these rates (as big players stop pouring in funds sub-3%). When ETH switches to staking, large investors will likely pour money into the lock-up until we hit somewhere in that 3% – 5% range (we likely won’t go below that as the network still has some tech risk not seen in traditional markets and so rent seekers will want a slightly higher gain to take the risk.)
in order to push down to that level, it means locking up somewhere between 10M – 30M+ Ethereum in Ethereum 2.0 validators. During the early days of the chain there is no way to get that ETH back out. (So we may see lower investment and higher interest rates to start) But, this means that roughly 10% – 30% of all circulating Ethereum would need to be locked up before the network is below the return rate that is targeted by large rent seeking whales. What happens when you remove 30% of the supply suddenly? You get a Supply Shock.
Every major trader, investor and miner knows they can become a rent seeker, and so those who typically provided market liquidity are going to be hesitant to sell. This will likely hit the lending pools and DeFi liquidity first.Supply Shocks typically cause a drastic increase in the price of a good. Just like we’ve seen with disrupted covid supply chains. So this lockup alone creates a scarcity causing a price spike.
Reason 2: Secondary Rounds The price spike from Supply Shock means rent seekers are getting 3% – 5% RoI in Ether & actually getting much higher returns on their fiat principle on their books – possibly 2x – 4x+ and so they go in for a second round of buy & stake until their fiat on book RoI is back at the 3% – 5% RoI rate. This is a ripple effect with diminishing returns where each round gets smaller and smaller in terms of its price impact. While it won’t have the same full impact of the initial buying round, all the ripples combined may have the potential to impact up to 2/3rds the same volume depending on the price action.Reason 3: Retail FOMO So now we have rent seekers creating supply shock, and we have secondary round ripple effects. This means the market really starts to move upwards. That creates FOMO among the retail investors who typically react late to any investing stimulus (they buy part way up the up-swing, and sell part way down the down-swing). Retail investors, especially those in FOMO mode tend to be heavy-handed and over-extended. They’ll hammer in market buys to make sure they don’t miss out. these retail investors don’t care about P/E, or RSI, they aren’t looking at market-depth. They just want in. When they start ordering heavily, they tend to flood markets. In the major bull market in 2017, the big stop gap was users being able to on-board to exchanges.Reason #4: Actual demand The best reason for this growth, and one that only ETH2.0 can really claim, is actual demand for the asset, as use for gas in a decentralized computer.Reason 5: Whale Cycle Buying As actual use drives up the price, what happens? Those rent seeking whales are back. The price has went up so much, that their RoI rate is up, and so they can put more money back into staking. But, the more they put into staking,Reason #6 Over Reaching (Rounding): Were a whale to find themselves having made 20 ETH worth of profits from their nodes they can’t simply stake that amount. They need to round it up to 32 ETH. This means they have to go out and acquire 12 additional ETH with some other source of funds.Finally we have our last, and perhaps most important reason for Ethereum 2.0 driving critical growth:
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