5 ms·

Ethereum's chain is profitable. The networks fees outweights the supply given to validators to secure the chain.

by coolestguy 4y ago

lottin 4y ago
Source?
- yokem55 4y ago
  https://ultrasound.money https://ultrasound.money tracks this. You can play with the sliders projecting things out depending on how much ether is staked vs what the sustained transaction fees are.
  - lottin 4y ago
    It's unclear to me by looking at these numbers that the network is profitable. Profit is the difference between revenue and cost, so we need to know the amount of fees earned and the operating expenses.
    - yokem55 4y ago
      Ethereum measures its "costs" as issuance paid to stakers while measureing "income" in the amount of eth burned by users via gas fees paid to transact on the network. Since the merge, there has been about 15K more eth burned in transaction fees then has been issued to validators.
      - lottin 4y ago
        Both issuance of eth and fees are forms of revenue to validators. You're saying that revenue is predominantly in the form of transaction fees. This is just one part of the equation. The other part is costs, and this doesn't tell us anything about the costs incurred by the validators. Therefore no conclusions about the profitability of the network can be inferred from this data.
        lmm 4y ago
        The argument would be that transactions must be worth at least what people pay for them, otherwise people wouldn't pay for them.
        lottin 4y ago
        Nobody is doubting that transactions aren't worth what people pay for them. The doubt is whether the fees that users pay exceed the costs of operating the network.
        yokem55 4y ago
        90+% of the transaction fees are not paid to validators. They are burned or thrown away. That reduces the supply of eth to the benefit of all other eth holders.
        lottin 4y ago
        If fees are thrown away you can't count them as revenue. Also, still no mention of costs.
        TimJRobinson 4y ago
        The cost is all the money paid to validators, which is currently less than the revenue the network receives. This is on the ultrasound money website and also token terminal (and a few other places) The cost of running the validators is irrelevant to Ethereum (though it is tiny), it'd be like saying you have to calculate employees lifestyle costs to figure out the "real" cost to a company. The cost is the wages you pay the employees (the rewards given to validators) not how much the validators spend.
        lottin 4y ago
        Sorry, aren't these "validators" part of the network? They run the network, don't they? The money that they get paid is therefore revenue, not a cost, from the standpoint of the network.
- mszcz 4y ago
  If it weren't true the network wouldn't run longer than it takes one's idle curiosity yield to the electricity bills.
- piqi 4y ago
  https://tokenterminal.com/leaderboards/earnings https://tokenterminal.com/leaderboards/earnings
tbruckner 4y ago
But it's still a Ponzi scheme in that you're paid out in the thing you stake, so you don't necessarily have any more value with respect to an external reference. For all practical purposes, you could exchange the currency for something else. But that's outside the scope of the staking system as defined. I'm not making any negative or positive judgement on the system, Ponzi scheme is just a description of how it operates. Similarly, any stocks that does not pay out dividend is also a Ponzi scheme.
- TAKEMYMONEY 4y ago
  > it's still a Ponzi scheme in that you're paid out in the thing you stake > any stocks that does not pay out dividend is [sic] also a Ponzi scheme Neither of these things are "Ponzi schemes." Read about Charles Ponzi's role in his investment scheme to understand why.
- NineStarPoint 4y ago
  That’s not what a ponzi scheme is though. The most important thing about what makes a ponzi scheme a scheme is that the person running the scheme is obfuscating where the money being paid out comes from. It’s when someone pretends they’re doing something highly profitable to attract investors, but actually when they pay people with what they claim is profits they’re actually just using the money from other investors. The defining feature of a ponzi scheme is not that if no one would be willing to buy if off you, if would have no value (that’s definitionally true of all objects). It’s that if new people stopped investing in the company, the company would fall apart. There is no value in a ponzi scheme separate from more money piling into it. This is very different from a stock that doesn’t pay a dividend. While you’d never get money out of it if no one was willing to buy it, what stocks generally promise is some amount of ownership and voting rights in a company (which theoretically could result in dividends, if enough stock holders agreed). That said ownership ended up not being valued by other people does not make it fraud. You can certainly feel free to believe that stocks that don’t give dividends are worthless though, that’s a separate question really. I generally come down on the side that the major cryptocurrencies aren’t ponzi schemes, or fraud in general. (Plenty of fraud in the shitcoins, of course). Ultimately you decided to buy a data point on a ledger in a distributed system, and that’s what you get. But…well, mining sometimes confuses that. Without enough people coming into the system to buy new coins, the miners would start shutting down until none were left. Much like a ponzi scheme, crypto currencies seem reliant on new blood to keep functioning to me. Don’t know if that makes them a scheme necessarily, but they’re more adjacent to it.
8note 4y ago
I don't know how to parse this. The fees are larger than the amount staked? The fees, when realized into gains, are worth more than the cost to run the validation? Are the validators converting back to pay for their costs? Or paying for them some other way? Does it stay profitable if ethereum drops to 1% of its current trading value?
- TimJRobinson 4y ago
  When people pay fees for transactions most of that fee is burnt. Blocks have a fixed amount of rewards given to the validator that created them and the validators that attest it is valid. When more fees are being burnt than Ethereum issued in blocks it is deflationary. It is deflationary at ~16 Gwei and fees have been higher than this for a while now. Validators cost very little to run, they're usually NUCs that use 20w, the main cost is the Ethereum you have to stake.
  - scotty79 4y ago
    That would mean that number of total ETH drops. Is that true?
    - TimJRobinson 4y ago
      Yep that's what the main number at the top of https://ultrasound.money https://ultrasound.money shows.

Ethereum's chain is profitable. The networks fees outweights the supply given to validators to secure the chain.

lottin 4y ago

Source?

yokem55 4y ago
https://ultrasound.money https://ultrasound.money tracks this. You can play with the sliders projecting things out depending on how much ether is staked vs what the sustained transaction fees are.
- lottin 4y ago
  It's unclear to me by looking at these numbers that the network is profitable. Profit is the difference between revenue and cost, so we need to know the amount of fees earned and the operating expenses.
  - yokem55 4y ago
    Ethereum measures its "costs" as issuance paid to stakers while measureing "income" in the amount of eth burned by users via gas fees paid to transact on the network. Since the merge, there has been about 15K more eth burned in transaction fees then has been issued to validators.
    - lottin 4y ago
      Both issuance of eth and fees are forms of revenue to validators. You're saying that revenue is predominantly in the form of transaction fees. This is just one part of the equation. The other part is costs, and this doesn't tell us anything about the costs incurred by the validators. Therefore no conclusions about the profitability of the network can be inferred from this data.
      - lmm 4y ago
        The argument would be that transactions must be worth at least what people pay for them, otherwise people wouldn't pay for them.
        lottin 4y ago
        Nobody is doubting that transactions aren't worth what people pay for them. The doubt is whether the fees that users pay exceed the costs of operating the network.
      - yokem55 4y ago
        90+% of the transaction fees are not paid to validators. They are burned or thrown away. That reduces the supply of eth to the benefit of all other eth holders.
        lottin 4y ago
        If fees are thrown away you can't count them as revenue. Also, still no mention of costs.
      - TimJRobinson 4y ago
        The cost is all the money paid to validators, which is currently less than the revenue the network receives. This is on the ultrasound money website and also token terminal (and a few other places) The cost of running the validators is irrelevant to Ethereum (though it is tiny), it'd be like saying you have to calculate employees lifestyle costs to figure out the "real" cost to a company. The cost is the wages you pay the employees (the rewards given to validators) not how much the validators spend.
        lottin 4y ago
        Sorry, aren't these "validators" part of the network? They run the network, don't they? The money that they get paid is therefore revenue, not a cost, from the standpoint of the network.
mszcz 4y ago
If it weren't true the network wouldn't run longer than it takes one's idle curiosity yield to the electricity bills.
piqi 4y ago
https://tokenterminal.com/leaderboards/earnings https://tokenterminal.com/leaderboards/earnings

tbruckner 4y ago

But it's still a Ponzi scheme in that you're paid out in the thing you stake, so you don't necessarily have any more value with respect to an external reference. For all practical purposes, you could exchange the currency for something else. But that's outside the scope of the staking system as defined. I'm not making any negative or positive judgement on the system, Ponzi scheme is just a description of how it operates. Similarly, any stocks that does not pay out dividend is also a Ponzi scheme.

TAKEMYMONEY 4y ago
> it's still a Ponzi scheme in that you're paid out in the thing you stake > any stocks that does not pay out dividend is [sic] also a Ponzi scheme Neither of these things are "Ponzi schemes." Read about Charles Ponzi's role in his investment scheme to understand why.
NineStarPoint 4y ago
That’s not what a ponzi scheme is though. The most important thing about what makes a ponzi scheme a scheme is that the person running the scheme is obfuscating where the money being paid out comes from. It’s when someone pretends they’re doing something highly profitable to attract investors, but actually when they pay people with what they claim is profits they’re actually just using the money from other investors. The defining feature of a ponzi scheme is not that if no one would be willing to buy if off you, if would have no value (that’s definitionally true of all objects). It’s that if new people stopped investing in the company, the company would fall apart. There is no value in a ponzi scheme separate from more money piling into it. This is very different from a stock that doesn’t pay a dividend. While you’d never get money out of it if no one was willing to buy it, what stocks generally promise is some amount of ownership and voting rights in a company (which theoretically could result in dividends, if enough stock holders agreed). That said ownership ended up not being valued by other people does not make it fraud. You can certainly feel free to believe that stocks that don’t give dividends are worthless though, that’s a separate question really. I generally come down on the side that the major cryptocurrencies aren’t ponzi schemes, or fraud in general. (Plenty of fraud in the shitcoins, of course). Ultimately you decided to buy a data point on a ledger in a distributed system, and that’s what you get. But…well, mining sometimes confuses that. Without enough people coming into the system to buy new coins, the miners would start shutting down until none were left. Much like a ponzi scheme, crypto currencies seem reliant on new blood to keep functioning to me. Don’t know if that makes them a scheme necessarily, but they’re more adjacent to it.

8note 4y ago

I don't know how to parse this. The fees are larger than the amount staked? The fees, when realized into gains, are worth more than the cost to run the validation? Are the validators converting back to pay for their costs? Or paying for them some other way? Does it stay profitable if ethereum drops to 1% of its current trading value?

TimJRobinson 4y ago
When people pay fees for transactions most of that fee is burnt. Blocks have a fixed amount of rewards given to the validator that created them and the validators that attest it is valid. When more fees are being burnt than Ethereum issued in blocks it is deflationary. It is deflationary at ~16 Gwei and fees have been higher than this for a while now. Validators cost very little to run, they're usually NUCs that use 20w, the main cost is the Ethereum you have to stake.
- scotty79 4y ago
  That would mean that number of total ETH drops. Is that true?
  - TimJRobinson 4y ago
    Yep that's what the main number at the top of https://ultrasound.money https://ultrasound.money shows.