Optimizing for the price of the staking token


Thoughts on this?

For ETH to be secure, it must be valuable. For it to be valuable, the staking rewards must be compelling… Monetary policy (issuance) is only one factor, and it depends a lot on the price-time horizon.

Short term price matters less, but ETH’s success is path dependent so if ETH price drops more now teams might run out of funding and slow down, then projections lose credibility; spiral

First principles - long-term ETH value comes from utility (staking rewards), and short-term value from speculation on future utility. So to optimize for long-term, ETH needs to secure as much onchain settlement value as possible.

To optimize for securing onchain settlement value, since we’re building the blockchain “internet of value” (e.g. a network), ETH should try and position itself as a “supernode” in the network, where the greatest number (weighted by value) of shortest paths flow through it.

This includes dapps that connect people entirely on ETH, like uniswap, 0x, DAI txns, but also includes securing L2 channels/plasma/sidechains and facilitating value transfer between them. It follows that ETH would benefit from building connectors to the most valuable chains.

I’m willing to bet that over the next 5 years we’ll start to see the first central bankchains coming online and onboarding the world—the incentive for them is much better tx data coupled with real-time monetary policy to better control their economies.

So the ultimate bull-case I see for ETH is to be an international settlement layer between these bankchains. They can issue their fiatcoin on their chain, but if they want to xfer to other national bankchains they’ll want to go through a public blockchain to prevent double spend.

If this happens, central bankers might be inclined to buy ETH and stake it, contributing to the security of the platform while also earning interest. It only takes a few to power the narrative, and the incentive is really high to be the first mover, so it’s not that crazy.

This makes it clear what ETH should be focused on:

  • onchain scalability -> more txns = more value
  • security network effects -> people want to connect to the most secure chain
  • development experience -> easily build secure high-value dapps and cross-chain integrations

So the above is what will drive long-term value, but how does that translate into value today? Well if the future of ETH was 100% de-risked, the price today would reflect its future value. It doesn’t because ETH holders discount its future value by the amount of risk on the path.

When investors like @fredwilson complain the ETH core team is “whittling down the value of the asset”, they aren’t complaining about “keeping issuance low”. They are talking about funding, ship dates, best-in-class dev teams, credible projections, & willingness to be competitive.

To the extent that existing and new developers are migrating to other chains like @cosmos, @polkadotnetwork, @dfinity, @eos_io, @Tronfoundation, etc… it represents a failure of ETH to provide a suitable L1+L2 development environment to cater to a multitude of use cases.


His thesis that increasing the value of staking tokens increases the security of a PoS platform makes intuitive sense. However, I feel like this analysis is overly complicated. To me, it’s pretty simple. The value of staking tokens ultimately revolves around how much income validators can earn through fees paid by users. Thus, the more fees validators collect, the more value your tokens will have. If your platform has a lot of users, then your tokens will have a lot of value.

The value proposition of a protocol like Harmony (in my mind) is fast, scalable settlement at low cost. If you can build a great ecosystem around that, then you’ll have a pretty killer platform. Intuition tells me that a large majority of users will concentrate on a single protocol, thus features that improve on-chain utility are probably a lot more important than features that improve cross-chain utility.