Anders Elowsson — Notes on Ethereum’s circulating supply equilibrium (ETHconomics @ Devconnect 2022)
Channel: ETHconomics Devconnect
Date: 2022-05-16

The economics of Ethereum is in profound transformation. The transition to proof of stake brings a new issuance policy, where users stake ether to secure the blockchain in return for newly minted tokens. This inflationary pressure is counteracted by deflation from the newly adopted EIP-1559, where base fees paid for transactions are burned. While the burn rate can be considered independent of the circulating supply, the issuance rate rises with a falling circulating supply. At the same time, the current burn rate is much higher than the minimum issuance rate needed for security. The two mechanisms will therefore lead to a circulating supply equilibrium. This talk will take a closer look at this equilibrium and provide some insights into the variables that can be used for modeling it. The talk will then transition to the prospect of minimum viable issuance under proof of stake, a policy used during the proof-of-work era. Such a policy can be enforced by targeting the lowest deposit ratio (the proportion of all ether that is staked) that still ensures sufficient security. The result can be described as “maximum viable deflation”, and its drawbacks and benefits are briefly discussed.

Please note that b at 9:14-9:54 should be b^2. Both the graph and the white text in the graph are correct.