Adam Cochran and the 7 reasons for Ethereum’s economic growth

Adam Cochran firmly believes that ETH will have violent economic growth following the launch of Ethereum 2.0 

He would have liked to speak out during a web3.0 conference, but Covid19 has got in the way of the professor.

Hence his slides and his speech turned into a tweetstorm.

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ETH 2.0 is only a few months away, and could prove to be the largest economic shift in society for a few key reasons.

Here is my 7 economic cases for how ETH will preform with the ETH 2.0 rollout. pic.twitter.com/fxIqu07xAb

— Adam Cochran (adamscochran.eth) (@adamscochran) April 17, 2020

Adam Cochran, a talented data analyst and professor of information science, is one of the pillars of marketing and development at DuckDuckGO. 

After lending his expertise in data analysis and marketing to high-calibre globalized companies, he also became interested in the blockchain world.

He is also an investment expert and has worked on NASDAQ-related projects.

He is an active member of MetaCartel Ventures, an ecosystem of developers and operators in the field of decentralized applications. Accelerating towards a mature web3.0 is the great goal of this team spanning three continents.

At the end of his explanation, Adam states:

“Ethereum 2.0 will create one of the largest, if not the largest, economic growth events in our modern society – and right now it’s still affordable to be a part of, and doesn’t require you to be an accredited investor or a big money bank”.

The 7 reasons why ETH2.0 will see an economic boom

Here is a brief summary of the points that required 50 tweets to be expressed on the social network.

These are the specific reasons why the author is convinced that ETH will perform very well during the launch of ETH2.0

1) Rent Seekers: 

The mechanism with which staking will allow the entry of new investors in the market starts from the traditional assumption that the interest rates must be between 3 and 5%. In order to achieve a balance that allows the entry of this category of investors, between 10 and 30 million ETH will have to be locked, which will initially be rewarded more for the risk.

In the first phase, fewer investments and higher interest rates will be seen. However, locking ETH should reduce the supply on the market by 30%, resulting in a shock supply. The economic effect, by textbook, will be a price increase.

2) Secondary Rounds

The price spike from Supply Shock means rent-seekers are getting 3% – 5% RoI in Ether & actually getting much higher returns on their fiat principle on their books and so they go in for a second round of buy & stake.

This is a ripple effect with diminishing returns where each round gets smaller and smaller in terms of its price impact.

While it won’t have the same full impact of the initial buying round, all the ripples combined may have the potential to impact up to 2/3rds the same volume depending on the price action.

3) Retail FOMO

The above mechanism will drive up the price and increase the entry of retail buyers, small investors with FOMO (fear of missing out) tend to be heavy and extensive. 

These types of operators are not always rational, they do not follow technical analysis and do not observe the depth of the market, they just want to enter. The market is flooded with new liquidity and we could see similar extensions to 2017. 

4) Actual demand

ETH has the function of gas and its demand is also driven by the use of the decentralized network.

The increase in transactions could be drastic, the technology will allow greater profitability of the platforms freed from the problems related to waiting times and the cost of fees. 

These improvements will lead to greater adoption for a demand that is currently held back only by scalability problems.

5) Whale Cycle Buying 

The actual use increases the price and with it the whales (big investors) look for returns on investment. 

They create new nodes and by diluting the potential gain of the whole network they force the participants to stake higher amounts in order not to lose profit percentages.

The mechanism creates scarcity because it locks the ETH in circulation and the cycle starts again. 

6) Over Reaching (Rounding)

The proof of stake design of Ethereum 2.0, thanks to opportunity cost calculations on revenue, which are well explained in the author’s tweet, makes it necessary for stakers to supply ETH on the market to add the 32 necessary to supply the node when the network grows. 

7) Burning for Flat Supply with EIP-1559

This EIP will change the ETH fee model and make payments more efficient. We can expect the number of ETH burned each year to exceed the new issuance and start to reduce the overall ETH supply by minimizing inflation or even making it negative.

If Reddit, as it appears, were actually to equip itself with an ERC20 token, it would be a striking example of the deflationary effect created by users.

In conclusion

In Vitalik’s words, the economic policy for Ethereum is the minimum ETH issuance necessary to protect the network.

Ethereum will eventually achieve that balance and supply and demand will push the price to have a good steady growth rate so that it is always economically sustainable to protect the Ethereum network. 

However, this balance will probably come at a much higher price than what we see now and therefore the first users/ investors will be rewarded.