Disclosure: Delphi Ventures and members of our team hold ETH. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only, and you should not make decisions based solely on it. This is not investment advice.
- With EIP-1559 set to go live next month, Ethereum will soon experience a massive shake up to its fee market. The goal is to make the fee market more predictable, enhancing the UX, while also improving the value accrual properties of ETH since a portion of fees will now be burned. This will put downward pressure on the ETH supply as economic activity on the network grows.
- The amount of ETH burned will primarily be driven by demand for block space. Expectations should be tempered on the immediate impact this will have on supply given the currently modest fee levels relative to prior months earlier this year.
- EIP-1559 is simply the first step. The real catalyst for ETH becoming a net deflationary asset will be the Merge, which is the transition from PoW to PoS. This is expected to take place in Q1 2022 and will result in a sizable decrease in new issuance, as PoW block rewards are eliminated.
- Based on what we believe are reasonable assumptions, we