Basic Ethereum Economics and How to Accumulate $ETH Safely on Polygon

Basic Ethereum Economics and How to Accumulate $ETH Safely on Polygon

By Budget Boy | Budget Boy Finance | 18 Aug 2021


ETH is the fuel that powers an entire parallel financial world also known as “DeFi” or decentralised finance. At its peak the DeFi sector was about $140 Billion and will most definitely grow out of its parallel economy status and will be mainstream in the future. The demand for ether can be compared with world demand for fuel in all its forms as the world as we know it will not work without it. Similarly the ethereum ecosystem cannot function without ether.

With the advent of EIP 1559 and also ETH 2.0 in the future, ETH will become a deflationary asset and the demand will only go up as DeFi and other sectors like NFT, Web 3.0, Metaverses etc become mainstream and see mass adoption. It is only rational to accumulate as much ETH as possible given its strong fundamentals.

By referring to the images below one can observe that the price of the native currency of a good public infrastructure blockchain (in this case ETH) grows as adoption and users increase. More users and increase in usage helps in disperse the circulation of money more equally reduce the disparity in the distribution of ETH which also has a positive correlation with the price.

Figure 01: Correlation between no of active users and ETH price

1af1c354dd6832b23d20866ff6c1d0f1a8b97b04dd3ccc529c68339cce3e5763.png

From figure 01, one can observe that there is a  clear and strong correlation between the number of active users and the value of a network as described by Matcalfe’s law (description requires another dedicated article).

Figure 02: GINI Coefficient of ETH

b15652b4c3fd158e3b74f6358410bb0e931b14f769f777586e537b4754e892e6.png

The GINI coefficient has improved by 11% in just 5 years in the ethereum ecosystem whereas traditional economies like the USA has only seen its GINI worsen YoY consistently for the last 40 years. The USA has a worse GINI coefficient than ethereum so this clearly shows you that the current economic policies are wrong and favour the rich which in turn lead to an increase in disparity in the distribution of wealth in society. The new, improved and disruptive economic model of blockchain based products and services will disrupt the traditional economy and bring back equality.

Figure 03: GINI of US Households

RED - GINI; BLUE - MEDIAN INCOME

The red line represents the GINI coefficient and the blue represents the median household income in the united states. The $USD is the asset that fuels the entire economy of the United States of America. In an idealistic economy, the concentration of wealth must dissolve over time as the economy matures. It indicates that more and more users are able to create wealth by taking part in economic activity as seen in Figure 01 & 02. 

The GINI of the USA has consistently worsened YoY as seen by the RED line.

Current economic policies are highly in favour of the rich due to reasons that are beyond the scope of this article. Based on the above argument it is only logical to bet on future i.e. ETH as it allows its participants equal rights to gain access to the same financial products and services.

To come back to the subject of accumulating ETH, below are some low - medium risk strategies that a holder of ETH can adopt in the Polygon DeFi landscape:

Low Risk ~ 6% to 7% APY (Could be greater once QiDao incentivises borrowing MAI)

1. Deposit WETH in Aave

2. Withdraw amWETH from Aave and create a camWETH vault in QiDao.

3. Mint 33% of the value of the camWETH vault in miMATIC

4.Supply miMATIC in Balancer v2 stability pool

5.Sell Balancer LM rewards for more wETH using 1inch

6.Deposit WETH in Aave

7. Repeat steps 2 to 5

Medium Risk 10% to 11% APY(Could be greater once QiDao incentivises borrowing MAI)

1.Deposit WETH in Aave

2. Withdraw amWETH from Aave and create a camWETH vault in QiDao.

3.Mint 33% of the value of the camWETH vault in miMATIC

4.Swap 50% of miMATIC for USDC and create a USDC/miMATIC LP on Quickswap

5.Deposit USDC/miMATIC LP on QiDao Farm Section

6.Swap Qi LM rewards for more WETH

7.Repeat steps 2 to 5

Note: There are many other risky strategies that one could opt for but since ETH is a precious and deflationary commodity it is not recommended.

An APY of 6% to 11% is highly unsatisfactory in the crypto industry but there are a few things to be remembered here:

  1. APY is on an asset that goes up in value unlike traditional finance where “FIAT” currency is inflationary in nature.
  2. Since most people prefer to hold, lend and recently stake their ETH one cannot expect massive returns on ETH as it is only used in a conservative manner overall.

The link to the computation of strategy has been provided below for reference:

Aave wETH Strategy

How do you rate this article?


59

2

Budget Boy
Budget Boy

DeFi and Crypto Enthusiast


Budget Boy Finance
Budget Boy Finance

Decentralised Finance, Crypto and Economics

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.