ETH Ethereum's token economics brief analysis

Vitalik 2025-10-20 13:08 99023人围观 ETH

Ethereum's token economics is a dynamic system that seeks a balance between ensuring network security, motivating participants, and controlling token supply through a series of sophisticated mechanism designs. To understand it in depth, we can first look

Ethereum’s token economics are a dynamic system that seeks a balance between ensuring network security, motivating participants, and controlling token supply through a series of sophisticated mechanism designs. To understand it in depth, we can first look at its core mechanism, challenges and future development directions.

🪙 Supply and Inflation EIP-1559 Burning Base Fee； PoS issuance rewards are given to validators to achieve net deflation and control the inflation rate.

Still moderate inflation: average annual growth rate is about 0.51%-0.805%, because issuance > burn； Inflation is more pronounced during periods of low network activity

🏦 Proof of stake and security (PoS), validators pledge ETH to receive rewards to ensure network security, reduce energy consumption and issuance rate

The issue of attractiveness of pledge yield: Decreased attractiveness in the traditional high interest rate environment；

Centralization Risk: Toward Large Validators

💸 Value capture uses ETH as an asset through Gas fees (partial burning) and L2, converting network usage value into the value of ETH itself

L2 value loss: A lot of activity migrates to L2, but it only pays minimal fees to the mainnet；

The use of stablecoins fails to effectively empower ETH

🔥 Understanding Supply Dynamics: The Battle of Burn vs. Issuance

The supply changes of Ethereum are essentially a race between "burning" and "issuance".

· Burning mechanism (EIP-1559): After the 2021 upgrade, the base fee of each transaction will be permanently burned. This directly reduces the circulating supply of ETH, theoretically creating deflationary pressure.
· Issuance mechanism (PoS reward): After the Merge, Ethereum converted to Proof of Stake (PoS). New ETH is issued to validators as rewards to incentivize them to secure the network. The current annual circulation is approximately 620,000 ETH.

The current situation is that issuance is slightly higher than burn, resulting in supply still growing slowly. To achieve deflation, network activity needs to be high enough so that the amount of ETH burned exceeds the amount of new issuance. However, the Dencun upgrade in 2024 has significantly reduced the transaction costs of L2. Although this improves the user experience, it also reduces the gas fees burned on the main network and brings new challenges to the deflation target.

⚖️ The security and inflation balance of the pledge mechanism

With the move to PoS, the network ensures security by incentivizing validators to stake their tokens by issuing new ETH.

· Low issuance and security: Compared with the PoW era, the ETH issuance rate of PoS has been reduced by about 95%. This is because the security of PoS no longer relies on huge energy consumption. In theory, as long as a certain proportion of ETH is pledged, the network is secure enough.
· Incentive challenges: At present, the staking yield (approximately 3.2%) may become less attractive to some investors in the macro environment with higher Federal Reserve benchmark interest rates. This may result in a drop in staking rates, but overall the network remains secure.

🔗 The biggest challenge: the value capture dilemma in the L2 era

This is the focus of the current discussion on Ethereum token economics. The success of Ethereum has led to the emergence of a large number of Layer 2 (L2) solutions (such as Arbitrum, Optimism, Base), but the L2 boom has not fully captured the value back to ETH itself.

· Value loss: When users conduct transactions on L2, most of the handling fees paid are earned by the L2 sequencer, and only a very small amount (used to publish data on the Ethereum main network) will be contributed to the main network in the form of burning ETH. Some analysts pointed out that the fees paid by L2s like Base to the Ethereum main network only account for a very small part of their revenue.

· “Risk of "outdated security layer": Some people worry that if the status quo persists, the Ethereum mainnet may degenerate into a mere "security layer", and most of the application value and profits will be captured by L2.

The solutions proposed by the community mainly revolve around requiring L2 to "pay" for Ethereum's security in various ways, such as:

· Force L2’s sequencer to stake ETH.
· Share part of L2 fees with Ethereum stakers.
· Through restaking, the security of Ethereum is extended to L2.

🔭 Future prospects and controversies

Ethereum’s tokenomics are far from a foregone conclusion and are still evolving.

· Regulatory pressure: The U.S. SEC’s securities characterization of some ERC-20 tokens and potential policies such as prohibiting ETH ETFs from participating in pledges have increased uncertainty and may inhibit the inflow of institutional funds.
· Technology evolution and competition: The delay of key expansion technologies such as sharding has limited the transaction processing capacity (TPS) of the main network. The competition among high-throughput public chains such as Solana is also dividing the market and users.
· Internal narrative differences: Debates within the community about development priorities, such as whether to prioritize Rollup’s centralized route or other expansion plans, also affect ecological cohesion and market sentiment.

The specific combustion data of EIP-1559 or the L2 solution are important influencing factors.