Goldman Explores Ethereums Potential as a Deflationary Asset Amid Recent Performance and Protocol Upgrades

Goldmans Crypto desk explains that Ethereums appeal as a deflationary asset may be driving its regained popularity. Since the London hard fork and the Merge, ETH has become an increasingly deflationary

Goldman Explores Ethereums Potential as a Deflationary Asset Amid Recent Performance and Protocol Upgrades

Ethereum has been performing well in recent days, erasing all losses from the flash crash drop that occurred last week. This is due to the chaos in the banking sector which has enabled decentralized financial systems to showcase their transparency and resilience versus traditional markets. Ethereum’s relative performance to bitcoin has also been volatile recently, but it is currently outperforming BTC.

One of the reasons behind Ethereum’s regained popularity is its appeal as a deflationary asset. Goldman Sachs’ Crypto desk recently explained that Ether is an asset that powers and secures the Ethereum protocol. Users pay fees in ETH to execute transactions and use applications built on Ethereum, and validators are incentivized with staking rewards denominated in ETH. The value of ETH depends on one’s view of it as a store of value, means of exchange or financial asset.

At its genesis in 2014, around 72 million ETH supply was pre-mined, with current supply at around 118 million ETH according to Etherscan. Since then, ETH’s economics have undergone changes due to two recent protocol upgrades – the London hard fork and the Merge. The London hard fork introduced changes to the fee mechanism which decreased net ETH issuance through base fee burn and decline in block rewards.

Following the Merge in September 2022, Ethereum’s transition to Proof of Stake reduced ETH issuance by around 90%, leading it to be referred to as ‘ultra sound money’. Since then, daily ETH issuance has been deflationary every day in April due to increased on-chain activity led by DEXes, NFT platforms and stablecoins.

In 2023 alone, around 374k ETH has been burnt due to increased on-chain activity. This trend towards deflationary issuance is expected to continue as more activity occurs on the network.

Overall, Ethereum has become an increasingly deflationary asset over the past months, making it more appealing to investors looking for a store of value. Its economics have undergone changes due to recent protocol upgrades, and its value depends on one’s view of it as an asset. As decentralized finance continues to gain popularity, Ethereum’s appeal as a deflationary asset is likely to increase further.