Ethereum
Ethereum co-founder explains why ETFs will create a supply crisis – DL News
- The SEC appears ready to approve Ethereum spot ETFs.
- A significant portion of Ether is locked in staking, DeFi protocols, and DAOs.
- The asset could experience a supply crisis.
After months of radio silence, the Securities and Exchange Commission finally appears ready to approve Ethereum spot exchange-traded funds.
The resulting “deluge” of demand for Ether will likely lead to a supply crunch, said Joe Lubin, co-founder of Ethereum and founder and CEO of crypto infrastructure company Consensys. DL News.
Institutions that have already gained exposure to Bitcoin through recently launched ETFs on the asset “will most likely want to diversify into this second approved ETF,” Lubin said.
“There will be quite a lot of natural and pent-up pressure to buy Ether” through ETFs, he said, but there will be less supply to meet that demand than when spot Bitcoin ETFs were released. were approved in January.
In the case of Bitcoin, authorized participants – companies contracted to buy Bitcoin on behalf of the ETFs each day new shares are created – could simply purchase unused coins on exchanges or through over-the-counter counterparties .
But on-chain data watch that more than 27% of the total Ether supply is already staked on the Ethereum network. It is bound by contracts and provides a return to its owners.
“A lot of Ether is used in the main protocol, DeFi systems or in DAOs,” Lubin said, referring to decentralized autonomous organizations.
In other words, not only is the market value of Ether lower than that of Bitcoin – making the price of Ether more responsive to capital inflows – but a significant portion of its supply is unavailable for the consumption of ETFs.
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On top of this, the resumption of activity on Ethereum will cause the network to burn through a substantial amount of the existing Ether supply over time, further limiting supply.
Even in the case of Bitcoin, banks were so desperate to buy coins for ETFs that they contacted at least one major Bitcoin mining company to acquire some of its Bitcoin holdings, DL News learned. The supply crunch for Ethereum ETFs could be even bigger.
“This could be a pretty profound watershed moment” for Ethereum and the crypto industry as a whole, Lubin said.
Tom Carreras and Liam Kelly write about markets and DeFi for DL News. Do you have a tip on Ethereum ETFs? Contact us at tcarreras@dlnews.com or liam@dlnews.com