Title: Stabilize_the_purchasing_power_of_ETH
Category: EIPs

Author: flyonwall
Date: 2024-11-05T03:15:36.214Z

ETH has one of the largest networks in the blockchain world. Unlike BTC, ETH quantity in circulation is amenable to control: say, by the Ethereum Foundation, or even by a smart contract. These two things - a large network and adjustable quantity - are the only things you need to stabilize the purchasing power of any coin. Purchasing power is most easily quantified by price in USD.
Why would you want to stabilize the price of ETH?
The crypto community, by way of Coingecko and CoinMarketCap, compares coins by market cap. The larger the market cap, the higher the ranking, and ETH is number two right now. ETH is a far second to BTC. Moreover, USDT, the third ranking coin (a stablecoin), is catching up.  ETH was supposed to “flip” BTC to become number one, but ETH has slipped far behind instead.
If the price of ETH is stabilized, it can become number one and has a good chance to flip BTC. BTC price can’t be stabilized. Simply by declaring ETH to be henceforth a stablecoin, it can become the number one stablecoin.
There are security advantages to having a large market cap. A certain percentage of market cap is always staked; therefore, the larger the market cap, the larger staked ETH should be. I have no doubt that ETH can increase its market cap if its price were stabilized.
In terms of contribution to improving the human condition, a stable ETH can become a real alternative to USD, the current world standard currency, which is about to lose its value.
ETH can become a medium of exchange
Gas cost is still high compared to Solana, but several Layer 2 implementations have fixed this issue. ETH exists in practically all Layer 2s in one form or another.
People can now save in ETH and earn by staking. There would be no downside risk because ETH would be stable. People will be amenable to being paid a salary in ETH. Soon, people can buy groceries using ETH.
No, I am not talking about setting 1 ETH = 1 USD. Definitely not. The current price is about $2,400. The Ethereum Foundation can announce a target price of $4,000 (just as an example) at which point it cannot go higher anymore nor go lower. The purchasing power will be fixed at $4,000 but note that the price can still fluctuate depending on how USD can keep its value. At $4,000 price, 250 micro ETH = 1 USD.
Rather than measure its purchasing power by its price in USD, there will be independent groups who will measure ETH purchasing power across different real world products in the market.
How to stabilize?
Like any central bank, the Ethereum Foundation can control the purchasing power of ETH by controlling the quantity in circulation. One way to do this is by buying BTC using newly released ETH when ETH trends higher. The effect of buying BTC is increasing the quantity of ETH in circulation. When ETH purchasing power is trending down, the Ethereum Foundation can sell BTC (burning the ETH proceeds), which has the effect of taking away ETH from circulation. Unlike government-issued currencies, all actions by the foundation will be transparent and easily measured.
Another way to control the quantity is by actively controlling the gas price. However, this can affect ETH velocity also. Buying / selling BTC can be most effective in controlling the purchasing power. In the future, a protocol can be designed that aims to automate the purchase / sale of BTC according to ETH purchasing power trends.

Author: gcolvin
Date: 2025-03-09T22:44:53.971Z

flyonwall:

Like any central bank, the Ethereum Foundation can control the purchasing power of ETH by controlling the quantity in circulation.


In the past it is the Core Devs who make these decisions, not the Foundation.  I can’t really comment on the rest, except to say that it needs a fairly detailed quantitative analysis of the economics.  And seems that the more automated the mechanism the better.