The Perpetual Buyer - The Daily Gwei #439
There will always be a buyer of last resort for ETH.
I try to buy ETH whenever I can no matter the price - whether it’s at all time highs or in a downtrend. Of course, I’m not the only one who does this, but there’s one entity that does it better than anyone else. Obviously I’m talking about the Ethereum network itself which technically buys ETH every 13 or so seconds and then deletes it from the supply via the burn that was introduced with EIP-1559.
Every 13 or so seconds, an Ethereum block is mined and inside these blocks are transactions with their associated fees. The ‘base_fee’ portion of the transaction fee counts for roughly 70-80% of the overall value with the ‘tip’ filling up the remainder. This base_fee is the portion that is burned by the EIP-1559 mechanism with the tip going to miners (and then stakers in a post-merge world). Since EIP-1559 went live in early August of 2021, the Ethereum network has burned 1.844 million ETH ($5.7 billion worth at time of writing). This is ETH that is completely removed from the supply and will never return - it is not just locked in some smart contract waiting to be redeemed - it is quite literally gone forever.
All of this makes the Ethereum network the “buyer of last resort” for ETH because even if human demand to buy ETH was 0, the Ethereum network itself has an insatiable appetite for it. This is because the network is home to a host of activity and every single transaction has to pay the base_fee (in ETH) which is then burned. Even if no human is using ETH to pay the fees (say it gets abstracted away at the user-layer), the only settlement asset that the network accepts for fees is ETH - and there is no way to get around this and no way to get around burning the base_fee.
Given all of this context, you’ll now understand what I mean when I say that Ethereum network is a perpetual buyer of ETH. As long as the Ethereum network is live and as long as there is greater than $0 in fees being paid, some amount of ETH will be burned and removed from the active supply forever. Given that we all expect the Ethereum network to keep growing and given that we are still so early in the general adoption cycle of crypto, it’s a pretty safe bet to say that ETH as an asset will keep appreciating in value alongside the growth of the network.
The point of this piece isn’t to get you to fomo and go buy more ETH (remember: this isn’t investment advice) - rather, the point is to show you how unique of a network Ethereum is. Yes, other networks have integrated EIP-1559 or a similar burn mechanism, but none of them come close to the amount of fee revenue that Ethereum generates (which has been an average of $23 million daily for the last 7 days). And Ethereum generates this insane daily fee revenue because its blockspace is so valuable that people will pay hundreds and thousands of dollars just to buy a spot in one of Ethereum’s blocks.
Have a great day everyone,
Anthony Sassano
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All information presented above is for educational purposes only and should not be taken as investment advice.