Is ETH money?

Ethereum circles are continuously debating the extent to which ETH should be thought of as money, in the same way bitcoin is widely regarded as a commodity money.

In a Devcon talk Thursday, Ethereum Foundation researcher Mike Neuder laid out his case for ether's foundational attributes both as a permissionless and programmable asset, and as a resilient form of decentralized money. Neuder explored how ETH can serve as a secure, global currency with intrinsic safeguards for property rights, censorship resistance, and self-sovereignty across the multi-layered Ethereum ecosystem, eventually including its rollups.

To explain Ethereum's "permissionlessness," Neuder referenced foundational thinkers like Hayek and Friedman, emphasizing the unique ownership Ethereum provides to holders of ETH. On Ethereum's mainnet, ETH is permissionlessly transferable, storable, and programmable, distinguishing it from systems where access can be limited by third parties. For Neuder, this capacity marks ETH as a distinct asset within the digital financial landscape.

A pivotal part of Neuder's presentation highlighted the expanding property rights of ETH across layer-2 rollups.

With the caveat that rollups haven't yet reached a Stage 2 decentralization classification, they will allow users to bridge ETH in and out, permissionlessly through "force withdrawal," maintaining Ethereum's property rights.

Force withdrawals ensure that users can always reclaim their assets even if the sequencer, or central operator, attempts to censor or disrupt transactions. Arbitrum One and OP Mainnet have already reached Stage 1.

Neuder detailed Ethereum's commitment to this mechanism as a way to enhance scaling while protecting users' autonomy — a core element in Ethereum's rollup-centric strategy.

The talk also addressed Ethereum's inflation model compared to other cryptocurrencies, situating it alongside Bitcoin as an increasingly "sound" currency.

Since Ethereum's transition to proof-of-stake in the 2022 Merge, supply growth has significantly slowed, with inflation sitting near 0.9%, comparable to Bitcoin's 0.8%. Ethereum achieves this balance through a combination of issuance, staking rewards, and an ETH burn mechanism that fluctuates with network demand, effectively absorbing inflationary pressures during periods of high transaction volume.

Neuder argued that this adaptive model is crucial for long-term security, contrasting with Bitcoin's fixed supply cap, which may pose challenges for future network security once block rewards vanish.

Source: Mike Neuder

The blob burn effect from layer-2 activity is a crucial component of Ethereum's deflationary mechanics. L2s that operate on Ethereum, such as rollups, post transaction data to the Ethereum mainnet in "blobs" — bundles of data stored efficiently to reduce costs. As these blobs are published on the mainnet, they incur fees, a portion of which is burned, contributing to the overall ETH burn. This design enables Ethereum to absorb more L2 transaction activity without overwhelming the base layer, maintaining lower L1 gas fees.

As L2 usage grows, so does the blob burn effect, intensifying Ethereum's deflationary pressure during periods of high activity.

Neuder included a critique of centralized stablecoins like USDC and USDT, noting that despite their programmability, they lack true property rights as issuers can freeze funds. Ethereum's aim is to retain credible neutrality and censorship resistance, positioning ETH not only as a programmable asset but also as a form of digital money grounded in the ethos of self-sovereignty and decentralized security.

— Macauley Peterson (X: @yeluacaM | Farcaster: @Macauley)

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The burn on the rise:

Source: Blockworks Research

This pair of charts illustrate the changing impact of Ethereum's burn mechanism on ETH issuance.

The total dollar value of ETH burned, over time, spiked dramatically beginning in early November to nearly $15 million. This increase in burned ETH is due to heightened network activity, as transaction fees contribute to the burn rate.

The second chart shows this as a ratio displaying how the percentage of new ETH issuance is offset by burned transaction fees. As of Nov. 13, the burn ratio reached 182%, resulting in a net reduction of ETH supply.

The Avalanche network stands at a pivotal juncture with the proposal of ACP-125, which aims to reduce base transaction fees from 25 nAVAX to 1 nAVAX on the C-Chain—a 96% reduction. This research leverages recent fee reduction events across major blockchain networks, particularly focusing on Base and Optimism, to predict ACP-125's potential impact on Avalanche.

Access the report

Provenance leading the charge in RWAs

Provenance Blockchain is emerging as a leader in the tokenization of real-world assets, distinguishing itself with a governance structure that restricts its contracts to financial services, avoiding speculative assets like games and memecoins.

This focus supports consistent, sustainable growth in financial technology adoption, rather than relying on transient market trends. Although the network has shown steady expansion, fees are primarily generated by low-cost, infrequent metadata transactions. However, upcoming catalysts could significantly alter this dynamic and narrow Provenance's valuation gap.

For a deeper dive into these growth drivers, potential risks, and Provenance's strategic advantages, readers can refer to the latest report by Marc Arjoon on Blockworks Research.

Secret Sharing with Snitching (SSS) addresses the risk of shareholder collusion in threshold cryptography by making collusion provable and punishable, according to a research paper co-authored by cryptographers behind the Shutter protocol. SSS allows cryptographic evidence to expose malicious collusion, incentivizing self-regulation. This mechanism could be applied to enhance security in multi-party computations (MPC) and threshold encryption in Trusted Execution Evironments (TEEs), paving the way for broader adoption in decentralized systems.
CurveDAO has launched Savings crvUSD (scrvUSD), an interest-bearing version of its stablecoin crvUSD, developed with Yearn Finance. scrvUSD offers auto-compounding yields from crvUSD interest payments, designed to help stabilize crvUSD's peg and attract more borrowers, boosting Curve's ecosystem. The fully onchain, scrvUSD expands crvUSD's DeFi utility, competing with the likes of Sky's USDS and sDAI.
Botanix Labs proposes deploying Aave V3 on Spiderchain, an EVM-compatible Bitcoin layer-2 (L2). A "TEMP CHECK" forum post gauges community interest in expanding Aave's presence within Bitcoin DeFi. Spiderchain is a Bitcoin-aligned chain using BTC as gas, with low fees and 5-second block times, integrated with Chainlink and CCIP. The plan includes use of the GHO stablecoin to boost liquidity and adoption, allowing Aave to capture early Bitcoin DeFi users.
Infura's Decentralized Infrastructure Network (DIN) announced its launch of an EigenLayer AVS, at Devcon in Bangkok. Now operating across 12 blockchain networks, DIN serves as a decentralized API marketplace, similar to Lava Network. By using EigenLayer's staked ETH security, DIN provides a permissionless infrastructure marketplace, to support Ethereum's ecosystem across multiple blockchains.