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This critique is basically saying that cryptocurrencies have Ponzi-esque economics or more aptly named greater-fools economics. The argument being that as they

by pa7x1 3y ago

This critique is basically saying that cryptocurrencies have Ponzi-esque economics or more aptly named greater-fools economics. The argument being that as they have no cash-flows, any appreciation must come from future investors piling into the asset. I think this is a great optic to look at the problem as it focuses on the economic design, its sustainability, and its valuation in terms of future cash-flows. Nevertheless not all cryptocurrencies satisfy the above. The prime example being Ether. In the last year it has experienced -0.186% circulating supply inflation (i.e. it's non-dilutive to its holders) [1]. While the network has captured around USD 6.5M per day ~ 2400M per year in fees due to its usage as settlement layer which are paid to its stakers. Basically, it's cash-flow positive and does not rely on greater fools to sustain its economics. [1] https://ultrasound.money/ https://ultrasound.money/ [2] https://charts.coinmetrics.io/crypto-data/?config=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 https://charts.coinmetrics.io/crypto-data/?config=JTdCJTIybm...

RandomLensman 3y ago
What you are saying is you can invest Ether (i.e., stake it) and then might earn a return in Ether (not USD). Any appreciation of Ether vs USD still needs to come from outside demand for Ether.
- pa7x1 3y ago
  This is a subtle point but the fee revenues that the network observes are best understood as priced in fiat currency, even if denominated in ETH. In much the same way the earnings of Microsoft in Europe are to be understood as priced in EUR even if denominated in USD in their financial reports. The reason for it is basically that the network offers a service (transaction settlement layer) that provides some value to its users and has some costs. The cost is set dynamically due to the scarcity of blockspace to include transactions, if the cost is too high it will be outcompeted with all other alternative uses of that money. They may settle in a different chain, they may settle using a centralized provider (e.g. Visa, Paypal), they may not interact at all with the network, etc... This makes it so, at the margin, the network revenues are inherently priced in fiat. Because prices will be set at the point where use of the network is discouraged given the value provided and all other alternative uses of that money. Additionally, the fees of the network can only be paid in ETH, which means that any use of the network implies ETH demand.
  - RandomLensman 3y ago
    If there were no outside demand for Ether then Ether would we worthless in USD. What you are saying is, that there is demand for the network services from beyond existing Ether holders, thereby creating demand for Ether by USD (or other currency) holders. Whether people transacting on the network care strongly about the costs vs alternatives to create a proper link with fiat is not so easy to show because there isn't always a direct 1-to-1 correspondence between services (and there are switching costs, too) - so the "inherently priced in fiat" is tough to show, I think. Also, being priced in fiat might still not create demand for Ether from fiat holders - that comes from outside demand as per the above.
    - 3y ago

by pa7x1 3y ago

RandomLensman 3y ago

What you are saying is you can invest Ether (i.e., stake it) and then might earn a return in Ether (not USD). Any appreciation of Ether vs USD still needs to come from outside demand for Ether.

pa7x1 3y ago
This is a subtle point but the fee revenues that the network observes are best understood as priced in fiat currency, even if denominated in ETH. In much the same way the earnings of Microsoft in Europe are to be understood as priced in EUR even if denominated in USD in their financial reports. The reason for it is basically that the network offers a service (transaction settlement layer) that provides some value to its users and has some costs. The cost is set dynamically due to the scarcity of blockspace to include transactions, if the cost is too high it will be outcompeted with all other alternative uses of that money. They may settle in a different chain, they may settle using a centralized provider (e.g. Visa, Paypal), they may not interact at all with the network, etc... This makes it so, at the margin, the network revenues are inherently priced in fiat. Because prices will be set at the point where use of the network is discouraged given the value provided and all other alternative uses of that money. Additionally, the fees of the network can only be paid in ETH, which means that any use of the network implies ETH demand.
- RandomLensman 3y ago
  If there were no outside demand for Ether then Ether would we worthless in USD. What you are saying is, that there is demand for the network services from beyond existing Ether holders, thereby creating demand for Ether by USD (or other currency) holders. Whether people transacting on the network care strongly about the costs vs alternatives to create a proper link with fiat is not so easy to show because there isn't always a direct 1-to-1 correspondence between services (and there are switching costs, too) - so the "inherently priced in fiat" is tough to show, I think. Also, being priced in fiat might still not create demand for Ether from fiat holders - that comes from outside demand as per the above.
  - 3y ago