The ETH 2.0 Proof of Stake Merge | 5 Things to Know

Transcript

i think it's time to clear out some uh misconceptions here we want to do a few misconceptions the first there's some misconceptions going on about the merge right now i think we're gonna focus on maybe five things five misconceptions the merge do you want to take the first one yeah the first one is that stakers get unburnt fees and so not all of ether is burnt in a transaction fee uh and in proof of stake it's about uh it actually doesn't change versus proof of work versus proof of sake eip1559 on average burns about 75 of the transaction fee in the future stakers will get this 30 so unburnt fees tips on the execution layer will be sent to stakers

that's pretty awesome i don't know that many people know that post merge if you stake you actually get those tips you get the transaction fees passive income um in addition in addition to new ether that's minted as a block reward you also get 30 of all transaction fees which in bull markets can be very significant absolutely um the second thing wanted to highlight this is a misconception a lot of people think that once they once the merge happens that they will be able to withdraw their eth from the staking contract uh-uh can't not post merge okay not immediately post-merge i should say so staking an eth right now is a one-way ticket it still will be post-merged you will not

be able to withdraw your eth post merge there will be another update that happens i don't know this could be three months later six months later six is the longest that i've heard yeah so we'll have to see how long it takes but at that point in time you'll be able to withdraw not immediately i think there's some pros to this which is uh a lot of people are saying well post merged a bunch of the stake death is going to get sold no it's still going to be locked it's going to be locked up but also keep in mind that when you stake that eath is going to be locked it's a one-way ticket you're not going to be able to withdraw your post-merge so that's the second misconception to clear up yeah the alpha here is that post-merge there is zero net new ether introduced into the

secondary market the block reward issuance is going to stakers which is locked because they can't withdraw the fees are going to stickers which is locked because they can't withdraw the reason why they can't withdraw is just reduce complexity uh one step at a time this is a very big deal to merge to proof of stake and so we're just keeping it simple doing one thing at a time letting things sit let everything stabilize uh and then merge the withdrawals will be unlocked roughly six months later uh in that time in those that six months staking this the yield on staking goes from like five percent to probably like 15 and the demand to stake will be 3x because the yields are gonna be three times higher and so there's gonna be three times more demand to stake ether pull ether out of the secondary market

to stake it and no ability to withdraw for six months um bullish bullish i i think so as well why don't you take the the next one number three the third misconception the the merge will not reduce gas fees i think people got this conflated when we started talking about ethereum two versus ethereum one and once we merge we're at ethereum too that's no longer the case sharding will reduce gas fees but that's later that is phase two this is currently phase one which is the merge um so the merge is not going to reduce gas fees uh i'll take the next one this is just a reminder i think if you've been listening to bankless you probably know this but the eth issuance is about to drop from 4.3 percent in proof of work to 0.43

that's a smaller number it's crazy that's a lot 4.3 to point four three percent this is far lower than bitcoin like post happenings it'll take the lowest of any blockchain by lowest of any blockchain and at point four three percent a significant portion of that is going to be burnt that's where we get to ultrasound money deflationary eath as an asset because if the amount of eve burnt exceeds 4.3 percent then we're in deflationary territory negative eth burnt uh on the year so think about that four point three percent to point four three percent that is the eth issuance in the post merge world here you wanna do some comparisons ryan the current eth

issuance rate inflation rate is four point three percent as you just said solana is a little bit above nine percent in inflation rate and avalanche as we said earlier is at 26 inflation rate both solana and avalanche are proof of stake but their much higher issuance rate comes from their uh the model the the centralized monolithic blockchains that they have they have so much throughput that they need to issue a ton of currency in order to secure that very high rate of block space issuance more the more you create block space the more you have to spend on security because you have more block space to secure because they are very very high throughput blockchains because they're centralized they have to issue a ton ether ethereum is is much more much more limited in block space because we want to maintain decentralization at

the base layer that's how you do that therefore it doesn't have to issue as much so it's as low as 4.3 percent the point though ryan of why i'm doing this is that this is comparison 4.3 of ethereum in proof-of-work mode in comparison to other proof-of-stake blockchains and so when ethereum joins salon and avalanche in proof of stake it's going to be 0.43 inflation rate on ether versus solana's inflation rate of nine percent versus uh avalanche's inflation rate of 26 percent these are we are in different categories it's different economics man and that's not including the burn that's not including the burn well let's talk about the the fifth misconception and uh why don't you do this last one oh yeah this is a good one running a node post-merge does not

require any eath you can be either a staking validating node and you can add transactions to the blockchain or you can be a listening node and you can uh send your own transactions to the mempool via your own node but you do not in order to run your own node you do not need to add any eth to it it is free and accessible to anyone to run a node uh do you know that's not actually true ryan for avalanche i know i'm trying to not be an east maxie here but like in order to run a node on avalanche yes you have to be a validator in order to access the mempool and see what's going on in the mempool to participate in um yeah you have to stake at avalanche tokens which is reminiscent to order flow

for people that own the shares of the network it's a it's a it's concerning to me as to the gating of that information away from the public because the public can't run their own avalanche node yeah i am also concerned about that but this point is really important because some people say oh well it's going to cost thousands of dollars worth of eth to run a node no it's not it's just cost hardware and anyone can run it from a consumer machine that's by the way always been a case yes anyone can run a node on ethereum today just go download geth and set it up dapnode or something else uh david you know what's cool about this these misconceptions is they're starting to fade on the institutional side okay so people are starting to get it i don't

have a bloomberg terminal or a subscription or whatever is required but there is now an analyst at bloomberg who covers ethereum and he is writing some fire content about ethereum uh and there are a few articles that someone forwarded me this week this is one on the how ethereum is transitioning to a global asset this article absolutely nails it uh there's another article on how the dcf model suggests the network asset for ethereum eth is undervalued we just did some episodes with ryan alice and others on the dcf model for it we did our dcf model with justin drake over a year ago yes we did that over a year ago our conclusion was that i think ether

might be undervalued this is what this analyst says too conservatively ether could be worth 6 100 well you plug in whatever numbers in the dcf and you spit something out but it's sure a lot higher than it is today depending on the the numbers you put in but like any obvious number it'll be higher and then here's an entire bloomberg article on the the merge how the merch will be a super catalyst i guess all this to say is the institutions are starting to get it it's funny to me because we've been talking about the the value proposition ethan's a triple point money for like probably two years i would say like longer than that if you go back but on bank list for about two years and it's interesting to me to see kind of the lag time of like institutions starting to get on board

and starting to understand this these narratives this is um from our friends at one river asset management and they they bought one of the biggest bitcoin buys in history about a year and a half ago it's like they are uh an institutional hedge fund who is now very crypto focused uh this is what they say about ether ether is being transformed into a low-risk bond asset and it is cheap remember ethereum the internet bond remember all those articles we wrote about remember what we were talking about i remember uh the largest institutional investors are now saying it okay is increasingly clear this is a quote that the future of finance runs on ethereum with eth as a reserve asset to the ecosystem the institutions are now repeating it the narrative is cementing still an

early set of institutions but it's out there now um we did our job one of the things i've been hammering about as to one of the most underappreciated aspects of proof of stake with eip1559 and basically ethereum versus bitcoin is like bitcoin is really hard to value it's hard to put like numbers and models around demand for bitcoin uh it's just like do you take it on faith that people value this is really the bitcoin investment thesis with it with ethereum you have the issuance rate you have the burn rate you have the stake rate uh you have like active addresses for in d5 you have demand for ether in d5 there's so many metrics and numbers especially when like there's first off the appropriate numbers to actually make a dcf analysis

which is very comfy zone for institutions but the sheer number of just things to measure metrics for ether of the asset just is enabling institutions to be comfortable it makes it feel like it's in their wheelhouse which kind of is and it's definitely one of the most bullish things about ether it's like you can actually reason about it with metrics and numbers rather than just like uh assuming that there's going to be sufficient demand for an asset yeah they're like oh yeah we know bonds we know we know equities and we know capital assets oh and this thing performs like a bond like an equity like a capital asset okay we can value that thing and oops when we plug it in the spreadsheet it spits out a much higher price than the price of eth now that's what's going on look at look at that we

look at the words that they use low risk bond asset and it is i know that's all you need to know that's all you need to know hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested in crypto the bankless community is where you want to be click the link in the description to become a bankless

premium subscriber today also don't forget to subscribe to the channel for in-depth interviews with industry leaders ask me anythings and weekly rollups where we summarize the week in crypto and other fantastic content thanks everyone for watching and being on the journey as we build out the bankless nation