📌 Hybrid Casper FFG
A few of takeaways from EIP 1011
|Spencer Noon||Apr 23, 2018|
The spec is worth reading if you have some time, but if you’re feeling lazy, Trust Nodes (one of my favorite industry publications) summarized it here too.
I’ve been looking forward to Ethereum’s transition to a full Proof of Stake system for some time, so it’s exciting to hear that we’re only 3–4 months away from the first step of the transition happening.
Here were some of my biggest takeaways from the EIP:
1. Ethereum’s inflation rate is about to be reduced by 80%
In the new hybrid system that utilizes both Proof of Work and Proof of Stake, the PoW block reward will be .6 ETH and the PoS block reward will be ~0.22 ETH — this makes for a new effective block reward of .82 ETH , which constitutes an 80% reduction in network inflation. That’s a staggering drop in potential selling pressure from Ethereum miners.
To put this into perspective a bit more — once Hybrid Casper FFG is live, Bitcoin will have twice as much inflation as Ethereum (4% vs 2%) until its next block halvening in 2020.
2. The minimum deposit size for staking is roughly $1,000,000
The EIP specifies a minimum deposit of 1500 ETH (~$960,000 at the time I’m writing this) to participate in Casper network staking. That’s quite expensive and pours cold water on some of the rumors flying around that the minimum deposit was going to be considerably smaller. With that said, I fully expect to see smaller holders meaningfully participate in Casper staking via pools like 1protocol.
3. The incentives are strong to stake
The authors of the EIP estimate that 10M ETH will be deposited for staking, and in that case, stakers can expect to earn an annual interest rate of 5%:
Source: EIP 1011
If we continue on with the assumption that 10M ETH will be staked, that would give Ethereum holders two options once Casper goes live:
Option 1: Participate in staking and make +3% net annual return on your ETH (5% staking return minus 2% network inflation)
Option 2: Don’t participate in staking and make a -2% net annual return on your ETH (0% staking return minus 2% network inflation)
Given this dynamic, I fully expect some of the larger Ethereum holders (especially institutional investors who don’t like being diluted) to participate in staking as soon as it’s deemed safe for them to do so.