Compilation of the original text: Deep Tide TechFlow
If you look at Ethereum from the perspective of a company, what kind of company is it?
In the second quarter of 2023, there are 340,000 daily active users, gross profit equivalent to 700 million US dollars (453,000 ETHs), gross profit margin of 84%, net income equivalent to 420 million US dollars (227,000 ETHs), a quarter-on-quarter increase of 187%.
Under the strong network effect, the burning speed of ETH has been accelerated from 0.3% to 0.8%. Metrics for the Ethereum ecosystem (including L2) are growing across the board as the Shapella upgrade was successfully implemented without causing a sell-off in ETH.
This article is Ethereum's unofficial data report for the second quarter of 2023. It mainly analyzes and comments on the following content, giving you a comprehensive understanding of Ethereum's operations and financial situation from the data level.
Ethereum’s operational metrics;
Ethereum ecosystem (integrated L2 indicators);
Ethereum's profit and loss statement;
Main impact.
Operational indicators for the second quarter of 2023
Daily active users: Q2 daily active users were 340,588, down 3% year-over-year and an improvement from approximately 10% in Q1 2023 and Q4 2022. In the first few days of July, average daily active users dropped 12% compared to the second quarter of 2023. A drop in daily active users means fewer people are using Ethereum on a daily basis.
Average number of daily transactions: The average number of daily transactions was 1,046,592, down 4% year-over-year. The rate of decline slowed down compared to the previous two quarters. Average daily trades are almost steady at -1%. The decline in average daily transactions was due to fewer daily active users. Average daily transactions trended down in the first week of July.
Staked ETH: Staked ETH represents 17% of the total supply. The amount of staked ETH increased by 58% year-over-year and 13% quarter-on-quarter.
The Shapella upgrade was successfully executed on April 12, 2023. Contrary to what some feared, ETH did not see a sell-off after Shapella.
The amount of staked ETH continues to grow. But the rate of growth has slowed. The amount of incremental ETH per week decreased before and after Shapella (see graph below). About 1.8 million ETH was staked in April, 4 million ETH was staked in May, and 2.2 million ETH was staked in June.
Price: With an average Q2 price of $1861, ETH is up 55% year-to-date and 4% quarter-to-quarter. ETH fluctuates greatly within the quarter. ETH fell 22% from peak to trough during the quarter before bouncing back.
Total Value Locked (TVL): ETH’s TVL has fallen by 41% year-over-year, and the downward trend is still worsening. TVL is in line with the decline in Q1 2023, down 14%.
Ethereum Ecosystem
The health of Ethereum is increasingly assessed by the state of the Ethereum ecosystem. The Ethereum ecosystem includes its second-layer scaling solutions. Arbitrum, Optimism, Polygon zkEVM, StarkNet, and zkSync Era are used to determine the health of Ethereum's second layer. Events have migrated to the second layer, which offer cheaper and faster settlement of transactions. Assessing the Ethereum ecosystem, including the activities of the Ethereum base layer and second layer, presents a different picture. Daily active users (DAUs) and average daily transactions in the Ethereum ecosystem are growing.
Ethereum’s daily active user (DAU) growth has been stagnant since 2021. Over the past year, the number of DAUs in the Ethereum ecosystem has grown from 400,000 to around 800,000 (see graph above). However, DAU growth in the Ethereum ecosystem does not necessarily mean that more people are interacting in the Ethereum ecosystem. A more likely explanation is that part of Ethereum's DAU has also become the second layer of Ethereum's DAU.
Data for Polygon PoS is not included in the Ethereum ecosystem. Polygon PoS is a sidechain of Ethereum. Users of Polygon PoS may gradually migrate to the Polygon zkEVM chain. The focus of Polygon is the zkEVM chain. This migration could be beneficial to the Ethereum ecosystem. There are 360,000 DAUs on Polygon PoS, surpassing Ethereum's 300,000 DAUs. Ethereum's DAU will not double after the migration. A considerable number of Polygon PoS's DAUs are likely to be Ethereum's DAUs as well.
With the emergence of the second layer, more and more transactions are conducted by DAU in the Ethereum ecosystem. Since the second half of 2020, the average number of daily transactions on Ethereum has been hovering around 1 million. The number of transactions on Ethereum is limited to about 1 million per day. The second layer adds up to 2 million transactions per day. The total number of transactions in the Ethereum ecosystem has almost quadrupled in the past year (see chart below). For 1 transaction on Ethereum, there are 2 transactions on the second layer.
Polygon’s PoS chain averages 2.4 million transactions per day. If these transactions were migrated to the Polygon zkEVM chain or another Ethereum second layer, it would nearly double the number of daily transactions in the Ethereum ecosystem.
The average daily transaction volume of the entire Ethereum ecosystem will reach 3 million in the second quarter of 2023, up from 2 million in the first quarter of 2023. The average daily transaction volume growth rate of the entire Ethereum ecosystem accelerated from 17% in the first quarter of 2023 to 50%. In 2Q23, the average daily transaction volume of the Ethereum ecosystem increased by 139% year-on-year (see chart below).
The average daily transaction volume that occurs on the Ethereum ecosystem is 3 million, accounting for 16% of the total daily transaction volume of programmable blockchains other than Solana (see chart below). Solana's transaction data cannot be directly compared with other chains. Solana executes 20 million transactions per day. It is arguably one of the highest performing blockchains. However, due to its very high transaction throughput and low fees, a large percentage of these transactions are spam.
If Polygon PoS is factored in, the Ethereum ecosystem’s share of total transaction volume doubles to about 30%. Without considering BNB and Tron, the Ethereum ecosystem holds a 60% market share in daily transaction volume. BNB and Tron are quite different from the other blockchains in this group in that they are more centralized.
Ethereum Income Statement
Total fees: Total fees in Q2 were 453,235 ETH ($843,470,335), down 17% year-over-year, with transaction fees down 13% and transaction volume down 4%. Total expenses increased by 56% quarter-on-quarter. The sequential increase was due to a 57% increase in fees per transaction, while transaction volume decreased by 1%. The total fee represents the total cost a user pays to process all transactions posted to Ethereum. In traditional financial terms, this is the total revenue generated by the "company".
Gross Profit: Gross profit was 381,565 ETH ($710,092,465), an 84% gross margin during the quarter, meaning 84% of total fees were burned. Gross profit is often referred to as "network revenue." It captures a portion of the total fees accrued by token holders. Gross profit and total expenses increased year-over-year.
Daily charges and gross profit (ie revenue) tripled in May (see chart below). This growth is driven by the meme coin mania driven by Pepe. Subsequently, expenses and gross profit (i.e. revenue) returned to normal levels. Barring another one-time expense driver, expenses should decline sequentially in Q3 2022. Compared with the average daily cost in the second quarter of 2023, the average daily cost in the first week of July decreased by 27%.
Net income: The net income in Q3 was 227,147 ETH (422,720,567 US dollars), a quarter-on-quarter increase of nearly 3 times. The increase in net income was due to a 56% sequential increase in total expenses. The sequential increase in net income demonstrates the operating leverage of Ethereum. The cost of Ethereum does not grow with the total fee. The cost of Ethereum does not grow with the total fee. Total fees rose 56% month-on-month, but Ethereum’s fixed costs (the cost of issuing tokens to validators) fell 5% month-on-month. As a result, net income rose 187% sequentially.
Ethereum has been profitable every quarter since PoS was introduced. The significant improvement in profits is due to a 90% reduction in the cost of issuing tokens.
Tokens to be issued: Ethereum will burn more tokens in Q2 2023 than it will issue. Tokens to be issued decreased from 120.45 million to 120.22 million. Net issued tokens (calculated as annualized net issued tokens divided by opening balance) dropped from low single-digit percentages to -0.8%. Ethereum increases the number of tokens to be issued by about 3% in 2022. Now, it has reduced the number of tokens in circulation by about 1%.
How to interpret the profit and loss statement of Ethereum?
The total fee represents the fees paid by users to post their transactions on the Ethereum blockchain. Total cost includes base fee and tip. Tips are pass-through fees, which are paid to validators. Note that the tip item is the same number as the fee item paid to validators. It is a variable cost. It grows proportionally to usage. Users pay tips to get their transactions prioritized.
Base fees are fees paid by users to process transactions. Note that the base expense figure is the same as the gross profit figure. Gross profit represents how much money the Ethereum blockchain makes (in ETH) for the transactions it processes. Sometimes referred to as "network income". Gross margin indicates how much of the total Ethereum fees are burned. Burned tokens will be removed from circulation. This is similar to a share repurchase.
The cost of issuing tokens is what is paid to validators to keep the network secure. This is a fixed cost. It does not grow proportionally to usage.
Net income is the difference between the base fee (i.e. gross profit) and the newly issued tokens. Ethereum netted 227,147 ETH in the second quarter of 2023, which means it collected 227,147 more in base fees than newly issued tokens. As a result, Ethereum has 227,147 fewer tokens to issue.
The more net income Ethereum generates, the more ETH is burned and the fewer tokens remain to be issued. The fewer tokens to be issued, all else being equal, the higher the value of each token.
in conclusion
1. The surge in total expenses in the second quarter was short-lived
The surge in total fees and resulting token burns in Q2 was short-lived. It was driven by a one-time event - the meme coin mania. The surge lasted about two weeks. Q3 performance is expected to be weaker in 2023Q3.
2. The focus is on L2 solutions
Operational metrics for the Ethereum ecosystem, including layer-two scaling solutions, show a healthy and growing network. In contrast, ethereum’s standalone operational metrics point to a stagnant network. Ethereum's growth is driven by layer-two scaling solutions. Their success is critical to Ethereum. The upcoming implementation of EIP-4844 will have a significant impact on layer 2 scaling solutions and Ethereum.
In the short term, the only way to increase fees on Ethereum is through an increase in fees per transaction, i.e. a higher gas price. At present, the maximum number of transactions on Ethereum is about 1 million times per day. It is believed that layer 2 transactions will grow significantly. Layer 2 transactions will be batched as an input to the Ethereum base layer. The cost of one expensive Ethereum transaction will be spread across many fee payers for layer 2 transactions.
3. The growth of pledged ETH has slowed down
Before and after the successful implementation of Shapella, the amount of staked ETH has grown dramatically. The trend of slowing growth suggests that the amount of staked ETH may not grow as fast as previously expected by more than 50%. To achieve a 50% pledge ratio, an additional pledge of about 40 million ETH is required. At the current rate of about 1 million additional ETH staked per month, it would take 40 months or 3 years and 4 months to reach 50% staked.
This isn't necessarily a bad thing for ETH stakers. The lower the staking ratio, the higher the staking reward paid to validators, and therefore, the higher the ETH rate of return. ETH Yield is the sum of staking, yield, and MEV yield, and inflation or deflation of the token supply. The most economically attractive situation is one where the stake ratio is low, so the stake yield is high, and fees are high, so the yield is high. The least economically attractive case is the opposite. Economic perspective is not the only parameter driving the value of ETH. The higher the pledge ratio, the higher the security of the blockchain, theoretically resulting in a higher value of ETH.
The slowdown in the growth of the number of ETH pledged led to the underperformance of Lido and Rocket Pool. During the quarter, LDO and RPL fell 17% and 18%, respectively, while ETH was roughly flat. The slower growth in the number of ETH pledges combined with the smaller size of the Rocket Pool mini-pool means that there are fewer RPL buyers.
4. Ethereum’s operating leverage leads to massive burns
The profitability and burn mechanism of Ethereum is very important. Ethereum went from selling pressure of $22 million per day (at an ETH price of $1860) to buying demand of $5 million per day, a difference of $28 million. This $28 million move equates to 4.5% of Ethereum’s market capitalization.
There are two economic problems with Ethereum's PoW model. First, Ethereum used to issue 17,000 tokens per day to miners, equivalent to 5% annual dilution. Second, an estimated 70% of these tokens were sold immediately to cover expensive mining. At an ETH price of $1860, the issuance of tokens to miners and their subsequent sale resulted in a sell pressure of $22 million per day.
The introduction of PoS and the introduction of the burn mechanism turned the $22 million per day sell pressure into $5 million per day buy pressure. Ethereum is now burning (i.e. buying back) $5 million worth of tokens per day, while it used to sell $22 million worth of ETH tokens per day. The table below outlines the predicted profit and loss from PoW to PoS.
Most people misunderstand Ethereum's operating leverage. Operating leverage is a traditional financial term used to describe assets that grow profits much faster than revenues. Profit has grown significantly because operating costs have not grown while revenue has grown. Technologists often don't understand operating leverage. Traditional financial investors do not understand cryptocurrencies.
The “Forecast” column in the graph above shows Ethereum’s operating leverage. The forecast column assumes a 5-fold increase in total costs. A 5x increase in expenses led to a 9.9x increase in net income. Ethereum’s fixed operating cost, the cost of issuing tokens to validators, does not increase when total fees grow. The net result is a 9.9x increase in Ethereum's deflation rate. Compared to the current deflation rate of 0.4%, Ethereum will reduce the number of tokens to be issued by 4.2% per year when revenue increases by 5 times. Purchase demand will increase 5.2 times, from $5 million to $28 million per day.
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Data interpretation of Ethereum Q2 performance: gross profit of 700 million US dollars, ETH burning speed accelerated to 0.8%
Author: SAM ANDREW
Compilation of the original text: Deep Tide TechFlow
If you look at Ethereum from the perspective of a company, what kind of company is it?
In the second quarter of 2023, there are 340,000 daily active users, gross profit equivalent to 700 million US dollars (453,000 ETHs), gross profit margin of 84%, net income equivalent to 420 million US dollars (227,000 ETHs), a quarter-on-quarter increase of 187%.
Under the strong network effect, the burning speed of ETH has been accelerated from 0.3% to 0.8%. Metrics for the Ethereum ecosystem (including L2) are growing across the board as the Shapella upgrade was successfully implemented without causing a sell-off in ETH.
This article is Ethereum's unofficial data report for the second quarter of 2023. It mainly analyzes and comments on the following content, giving you a comprehensive understanding of Ethereum's operations and financial situation from the data level.
Operational indicators for the second quarter of 2023
Daily active users: Q2 daily active users were 340,588, down 3% year-over-year and an improvement from approximately 10% in Q1 2023 and Q4 2022. In the first few days of July, average daily active users dropped 12% compared to the second quarter of 2023. A drop in daily active users means fewer people are using Ethereum on a daily basis.
Average number of daily transactions: The average number of daily transactions was 1,046,592, down 4% year-over-year. The rate of decline slowed down compared to the previous two quarters. Average daily trades are almost steady at -1%. The decline in average daily transactions was due to fewer daily active users. Average daily transactions trended down in the first week of July.
Staked ETH: Staked ETH represents 17% of the total supply. The amount of staked ETH increased by 58% year-over-year and 13% quarter-on-quarter.
The Shapella upgrade was successfully executed on April 12, 2023. Contrary to what some feared, ETH did not see a sell-off after Shapella.
The amount of staked ETH continues to grow. But the rate of growth has slowed. The amount of incremental ETH per week decreased before and after Shapella (see graph below). About 1.8 million ETH was staked in April, 4 million ETH was staked in May, and 2.2 million ETH was staked in June.
Price: With an average Q2 price of $1861, ETH is up 55% year-to-date and 4% quarter-to-quarter. ETH fluctuates greatly within the quarter. ETH fell 22% from peak to trough during the quarter before bouncing back.
Total Value Locked (TVL): ETH’s TVL has fallen by 41% year-over-year, and the downward trend is still worsening. TVL is in line with the decline in Q1 2023, down 14%.
Ethereum Ecosystem
The health of Ethereum is increasingly assessed by the state of the Ethereum ecosystem. The Ethereum ecosystem includes its second-layer scaling solutions. Arbitrum, Optimism, Polygon zkEVM, StarkNet, and zkSync Era are used to determine the health of Ethereum's second layer. Events have migrated to the second layer, which offer cheaper and faster settlement of transactions. Assessing the Ethereum ecosystem, including the activities of the Ethereum base layer and second layer, presents a different picture. Daily active users (DAUs) and average daily transactions in the Ethereum ecosystem are growing.
Ethereum’s daily active user (DAU) growth has been stagnant since 2021. Over the past year, the number of DAUs in the Ethereum ecosystem has grown from 400,000 to around 800,000 (see graph above). However, DAU growth in the Ethereum ecosystem does not necessarily mean that more people are interacting in the Ethereum ecosystem. A more likely explanation is that part of Ethereum's DAU has also become the second layer of Ethereum's DAU.
Data for Polygon PoS is not included in the Ethereum ecosystem. Polygon PoS is a sidechain of Ethereum. Users of Polygon PoS may gradually migrate to the Polygon zkEVM chain. The focus of Polygon is the zkEVM chain. This migration could be beneficial to the Ethereum ecosystem. There are 360,000 DAUs on Polygon PoS, surpassing Ethereum's 300,000 DAUs. Ethereum's DAU will not double after the migration. A considerable number of Polygon PoS's DAUs are likely to be Ethereum's DAUs as well.
With the emergence of the second layer, more and more transactions are conducted by DAU in the Ethereum ecosystem. Since the second half of 2020, the average number of daily transactions on Ethereum has been hovering around 1 million. The number of transactions on Ethereum is limited to about 1 million per day. The second layer adds up to 2 million transactions per day. The total number of transactions in the Ethereum ecosystem has almost quadrupled in the past year (see chart below). For 1 transaction on Ethereum, there are 2 transactions on the second layer.
Polygon’s PoS chain averages 2.4 million transactions per day. If these transactions were migrated to the Polygon zkEVM chain or another Ethereum second layer, it would nearly double the number of daily transactions in the Ethereum ecosystem.
The average daily transaction volume of the entire Ethereum ecosystem will reach 3 million in the second quarter of 2023, up from 2 million in the first quarter of 2023. The average daily transaction volume growth rate of the entire Ethereum ecosystem accelerated from 17% in the first quarter of 2023 to 50%. In 2Q23, the average daily transaction volume of the Ethereum ecosystem increased by 139% year-on-year (see chart below).
The average daily transaction volume that occurs on the Ethereum ecosystem is 3 million, accounting for 16% of the total daily transaction volume of programmable blockchains other than Solana (see chart below). Solana's transaction data cannot be directly compared with other chains. Solana executes 20 million transactions per day. It is arguably one of the highest performing blockchains. However, due to its very high transaction throughput and low fees, a large percentage of these transactions are spam.
If Polygon PoS is factored in, the Ethereum ecosystem’s share of total transaction volume doubles to about 30%. Without considering BNB and Tron, the Ethereum ecosystem holds a 60% market share in daily transaction volume. BNB and Tron are quite different from the other blockchains in this group in that they are more centralized.
Ethereum Income Statement
Total fees: Total fees in Q2 were 453,235 ETH ($843,470,335), down 17% year-over-year, with transaction fees down 13% and transaction volume down 4%. Total expenses increased by 56% quarter-on-quarter. The sequential increase was due to a 57% increase in fees per transaction, while transaction volume decreased by 1%. The total fee represents the total cost a user pays to process all transactions posted to Ethereum. In traditional financial terms, this is the total revenue generated by the "company".
Gross Profit: Gross profit was 381,565 ETH ($710,092,465), an 84% gross margin during the quarter, meaning 84% of total fees were burned. Gross profit is often referred to as "network revenue." It captures a portion of the total fees accrued by token holders. Gross profit and total expenses increased year-over-year.
Daily charges and gross profit (ie revenue) tripled in May (see chart below). This growth is driven by the meme coin mania driven by Pepe. Subsequently, expenses and gross profit (i.e. revenue) returned to normal levels. Barring another one-time expense driver, expenses should decline sequentially in Q3 2022. Compared with the average daily cost in the second quarter of 2023, the average daily cost in the first week of July decreased by 27%.
Net income: The net income in Q3 was 227,147 ETH (422,720,567 US dollars), a quarter-on-quarter increase of nearly 3 times. The increase in net income was due to a 56% sequential increase in total expenses. The sequential increase in net income demonstrates the operating leverage of Ethereum. The cost of Ethereum does not grow with the total fee. The cost of Ethereum does not grow with the total fee. Total fees rose 56% month-on-month, but Ethereum’s fixed costs (the cost of issuing tokens to validators) fell 5% month-on-month. As a result, net income rose 187% sequentially.
Ethereum has been profitable every quarter since PoS was introduced. The significant improvement in profits is due to a 90% reduction in the cost of issuing tokens.
Tokens to be issued: Ethereum will burn more tokens in Q2 2023 than it will issue. Tokens to be issued decreased from 120.45 million to 120.22 million. Net issued tokens (calculated as annualized net issued tokens divided by opening balance) dropped from low single-digit percentages to -0.8%. Ethereum increases the number of tokens to be issued by about 3% in 2022. Now, it has reduced the number of tokens in circulation by about 1%.
How to interpret the profit and loss statement of Ethereum?
The total fee represents the fees paid by users to post their transactions on the Ethereum blockchain. Total cost includes base fee and tip. Tips are pass-through fees, which are paid to validators. Note that the tip item is the same number as the fee item paid to validators. It is a variable cost. It grows proportionally to usage. Users pay tips to get their transactions prioritized.
Base fees are fees paid by users to process transactions. Note that the base expense figure is the same as the gross profit figure. Gross profit represents how much money the Ethereum blockchain makes (in ETH) for the transactions it processes. Sometimes referred to as "network income". Gross margin indicates how much of the total Ethereum fees are burned. Burned tokens will be removed from circulation. This is similar to a share repurchase.
The cost of issuing tokens is what is paid to validators to keep the network secure. This is a fixed cost. It does not grow proportionally to usage.
Net income is the difference between the base fee (i.e. gross profit) and the newly issued tokens. Ethereum netted 227,147 ETH in the second quarter of 2023, which means it collected 227,147 more in base fees than newly issued tokens. As a result, Ethereum has 227,147 fewer tokens to issue.
The more net income Ethereum generates, the more ETH is burned and the fewer tokens remain to be issued. The fewer tokens to be issued, all else being equal, the higher the value of each token.
in conclusion
1. The surge in total expenses in the second quarter was short-lived
The surge in total fees and resulting token burns in Q2 was short-lived. It was driven by a one-time event - the meme coin mania. The surge lasted about two weeks. Q3 performance is expected to be weaker in 2023Q3.
2. The focus is on L2 solutions
Operational metrics for the Ethereum ecosystem, including layer-two scaling solutions, show a healthy and growing network. In contrast, ethereum’s standalone operational metrics point to a stagnant network. Ethereum's growth is driven by layer-two scaling solutions. Their success is critical to Ethereum. The upcoming implementation of EIP-4844 will have a significant impact on layer 2 scaling solutions and Ethereum.
In the short term, the only way to increase fees on Ethereum is through an increase in fees per transaction, i.e. a higher gas price. At present, the maximum number of transactions on Ethereum is about 1 million times per day. It is believed that layer 2 transactions will grow significantly. Layer 2 transactions will be batched as an input to the Ethereum base layer. The cost of one expensive Ethereum transaction will be spread across many fee payers for layer 2 transactions.
3. The growth of pledged ETH has slowed down
Before and after the successful implementation of Shapella, the amount of staked ETH has grown dramatically. The trend of slowing growth suggests that the amount of staked ETH may not grow as fast as previously expected by more than 50%. To achieve a 50% pledge ratio, an additional pledge of about 40 million ETH is required. At the current rate of about 1 million additional ETH staked per month, it would take 40 months or 3 years and 4 months to reach 50% staked.
This isn't necessarily a bad thing for ETH stakers. The lower the staking ratio, the higher the staking reward paid to validators, and therefore, the higher the ETH rate of return. ETH Yield is the sum of staking, yield, and MEV yield, and inflation or deflation of the token supply. The most economically attractive situation is one where the stake ratio is low, so the stake yield is high, and fees are high, so the yield is high. The least economically attractive case is the opposite. Economic perspective is not the only parameter driving the value of ETH. The higher the pledge ratio, the higher the security of the blockchain, theoretically resulting in a higher value of ETH.
The slowdown in the growth of the number of ETH pledged led to the underperformance of Lido and Rocket Pool. During the quarter, LDO and RPL fell 17% and 18%, respectively, while ETH was roughly flat. The slower growth in the number of ETH pledges combined with the smaller size of the Rocket Pool mini-pool means that there are fewer RPL buyers.
4. Ethereum’s operating leverage leads to massive burns
The profitability and burn mechanism of Ethereum is very important. Ethereum went from selling pressure of $22 million per day (at an ETH price of $1860) to buying demand of $5 million per day, a difference of $28 million. This $28 million move equates to 4.5% of Ethereum’s market capitalization.
There are two economic problems with Ethereum's PoW model. First, Ethereum used to issue 17,000 tokens per day to miners, equivalent to 5% annual dilution. Second, an estimated 70% of these tokens were sold immediately to cover expensive mining. At an ETH price of $1860, the issuance of tokens to miners and their subsequent sale resulted in a sell pressure of $22 million per day.
The introduction of PoS and the introduction of the burn mechanism turned the $22 million per day sell pressure into $5 million per day buy pressure. Ethereum is now burning (i.e. buying back) $5 million worth of tokens per day, while it used to sell $22 million worth of ETH tokens per day. The table below outlines the predicted profit and loss from PoW to PoS.
Most people misunderstand Ethereum's operating leverage. Operating leverage is a traditional financial term used to describe assets that grow profits much faster than revenues. Profit has grown significantly because operating costs have not grown while revenue has grown. Technologists often don't understand operating leverage. Traditional financial investors do not understand cryptocurrencies.
The “Forecast” column in the graph above shows Ethereum’s operating leverage. The forecast column assumes a 5-fold increase in total costs. A 5x increase in expenses led to a 9.9x increase in net income. Ethereum’s fixed operating cost, the cost of issuing tokens to validators, does not increase when total fees grow. The net result is a 9.9x increase in Ethereum's deflation rate. Compared to the current deflation rate of 0.4%, Ethereum will reduce the number of tokens to be issued by 4.2% per year when revenue increases by 5 times. Purchase demand will increase 5.2 times, from $5 million to $28 million per day.