SotN #44: Modeling Ultra Sound Money | Justin Drake
Bankless
Bankless
4.7 • 1.2K Ratings
🗓️ 28 April 2021
⏱️ 94 minutes
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Summary
Justin Drake is a researcher at the Ethereum Foundation and is leading the charge of applied cryptography to the Ethereum network. This is the third time Justin has come on the podcast.
If you haven't yet, dive into our first two episodes with Justin, 'The Bull Case for Cryptography' and 'Ultra Sound Money.' This episode rolls out how we can understand Ultra Sound Money using data-driven models.
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State of the Nation #44: Modeling Ultra Sound Money
Guest: Justin Drake
This is Justin's third appearance on Bankless. His first, The Bull Case for Cryptography, went in-depth into cryptographic hashes and digital signatures, the basic tools used to build blockchains. The second, Ultra Sound Money, presented a thematic overview for the Ethereum economic engine. In this episode, we model Ultra Sound Money and what upcoming upgrades to Ethereum mean for issuance, supply, and staking vs. mining.
Justin recently released four models cover the granular data-driven details of what Ultra Sound Money Means. These models deal with Ether's three main cashflows: Issuance, Supply, and Collateral. Justin argues that with the massive efficiency improvements to the Ethereum Network with Proof-of-Stake, Ether issuance will decrease by upwards of 90% and will proportionally reduce sell pressure from miners. He posits that ETH's peak supply will be 120M total Ether, and EIP-1559's burning mechanism will eventually reduce the total supply of ETH down to 100M.
Justin also expects the APR for staking Ethereum to be 25% following the Ethereum 2 merge. We visualize what these numbers mean by combining the Ethereum Economic Engine metaphor, Triple Point Asset thesis, and viewing capital as having an inherent temperature. Cold ETH means that it is locked up, securing the network and/or reducing total liquid supply. Hotter ETH is that which is actively available for use, but much of this ETH is vaporized through EIP-1559's fee burn mechanism. Therefore, on both ends of the temperature spectrum, supply & issuance are optimized via staking and fee burn.
Every episode with Justin is a deep exploration of the technicals that back Ethereum's memes of being a Triple Point Asset and Ultra Sound Money. However, understanding the models Justin lays out is cause for optimism on Ethereum's future as a vastly improved economic system. The State of the Nation this week is 'Ultra Bullish' – dive in to find out why.
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Resources:
Model #1: ETH peak supply model
https://docs.google.com/spreadsheets/d/1ZN444__qkPWPjMJQ_t6FfqbhllkWNhHF-06ivRF73nQ/edit#gid=0
Model #2: The road to 100m ETH supply
https://docs.google.com/spreadsheets/d/1XmeYkWEmaaZEUZ078A-lolchzNUrnlUllLkVXSGPzAU/edit#gid=0
Model #3: Net buy pressure
https://docs.google.com/spreadsheets/d/1TsrdbdusUop4NJbvjGBbOWTUwYH-Jgg1QBkQ5CtY_-k/edit#gid=0
Mode #4: staking APR with EVM fee rewards
https://docs.google.com/spreadsheets/d/1FslqTnECKvi7_l4x6lbyRhNtzW9f6CVEzwDf04zprfA/edit#gid=0
The Bull Case for Cryptography
https://shows.banklesshq.com/p/-moon-math-the-bull-case-for-cryptography
Ultra Sound Money
https://shows.banklesshq.com/p/-ultra-sound-money-justin-drake
Justin on Twitter
https://twitter.com/drakefjustin?s=20
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Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research.
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Transcript
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| 0:00.0 | All right, thankless nation. Welcome to another state of the nation episode. David, what are |
| 0:19.1 | we talking about today? What's the theme? |
| 0:21.4 | We are modeling out ultra sound money. We put out the episode with Justin Drake a while |
| 0:28.0 | ago. So now we are getting Justin Drake back onto the show to get into the granular details |
| 0:32.8 | of what makes ultra sound money, ultra sound money. There are numbers to discuss. And so we |
| 0:38.3 | are going to discuss all of them. There are numbers to discuss. There are models to discuss. |
| 0:43.5 | There are four different pieces to this. David, you tweeted this out pre episode. And we're |
| 0:48.2 | going to get into all of them. 25% staking annualized. |
| 0:53.2 | In terms of each supply, maybe it peaks at 121 million and never gets higher than 120 million. |
| 1:02.4 | This is 120 million and comes back down. Long term, |
| 1:06.4 | eth supply target, possibly 100 million. So that's the coming down part. And the potential |
| 1:12.5 | for sell pressure to be reduced by 90% just in Drake has brought the models behind some of those |
| 1:18.7 | astounding facts that I think very few people have actually looked into. I mean, the first |
| 1:24.0 | exposure to EIP 1559 and to the merge, the staking merge in a comprehensive way, I feel like was |
| 1:32.1 | almost the podcast that we did with Justin ultra sound money. Now that was very metaphor driven |
| 1:37.2 | that was very high level to help people understand the narrative. Now this is the supporting data. |
| 1:42.9 | This is the supporting numbers, the supporting financial projections behind all of this. |
| 1:49.2 | So I'm super excited to dig into this. And David, all time high ETH coincidence. I don't know. |
| 1:55.2 | I think not, sir. I think I knew it this episode was coming. I choose to believe that as well. |
| 2:00.8 | All right, David, what's new in the community before we get to Justin? |
| 2:04.5 | Got to talk about badges. If you are a bankless premium member, pick up your badge. We've been |
| 2:08.7 | saying it for two weeks. Definitely do it. Pick up your badge. This is the week. We're doing more |
... |
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