Bankless: Four signs that Ethereum’s bond era is coming

What is happening?

ETH is becoming the bond of the digital age. Although we predicted this trend a long time ago, it was not until the recent merger of the Ethereum consensus mechanism that the demand for ETH was officially added to our cognitive framework.

Here are four signs the era of ETH bonds is coming.

1. Distrust of the U.S. dollar has reached an all-time high

Distrust of the dollar has reached an all-time high. No matter how morally justified it may be, there is no turning back for the United States to remove the world's 11th largest economy from the global dollar system. The freezing of Russia's foreign assets exposes the weaknesses of other countries in using the dollar system (the United States can freeze dollar assets for political reasons, etc.).

Here are the high debts the Fed has:

This will lead to extremely high inflation rates not seen in decades.

In his latest interview, Jim Bianco believes that the U.S. Treasury market is bound to enter a deep bear market.

"No one wants to be a holder of U.S. Treasury bonds," he said.

The Fed's extremely high debt on the books coupled with rising inflation rates have led to an inversion of the yield curve between long-term and short-term U.S. Treasury bonds. This indicator shows that investors are unwilling to hold U.S. Treasury bonds for a long time.

People are looking for alternatives to U.S. Treasuries.

Ethereum is filling the gap in the US Treasury market, which is fleeing due to lack of confidence. It is worth mentioning that this is a market with a space of $14 trillion.

This also makes it very popular to compare the Ethereum staking market with the US Treasury market.

While the Fed has an all-time high level of debt, Ethereum cannot hold debt. While inflation threatens the real returns of US Treasury holders, ETH is heading for deflation. Unlike the US, which directly froze the world's 11th largest economy, Ethereum is neutral and credible.

Change is happening; the $14 trillion US Treasury market is shrinking, and the $0.5 trillion ETH staking market is rising.

ETH Bonds Offer Higher Real Returns

But the value of the US dollar is relatively stable, while the value of ETH fluctuates wildly! You can’t directly compare the US bond market to ETH staking! This is ridiculous!

First, the past ten years have been “ridiculous.” In these ten years, everyone has been changing their paradigm of understanding the world they live in, and investors who are not open to new ideas will find it difficult to succeed.

Secondly, the value of the US dollar is relatively stable, while the value of ETH fluctuates violently. But you can compare the two markets and calculate the critical value of ETH's retracement (the two have the same return).

The above chart is from Arthur Hayes’ new work. This chart shows how much ETH should depreciate if the two markets provide the same returns.

For example: If the staking rate yield of ETH is 8%, assuming that ETH falls by 32.6%, the rate of return that ETH can provide will not be lower than the 2.5% interest provided by the US 10-year Treasury bond.

Arthur Hayes believes that even if ETH fully realizes its appreciation potential (the price of the currency rises to $10,000 or even higher), rational investors will still be passionate about looking for higher returns in the Ethereum staking market compared to the traditional U.S. Treasury market.

Yes, the price of ETH is unstable. But the ETH staking yield is so high that price fluctuations are almost irrelevant.

If you are fundamentally optimistic about the future value of ETH, it is easier to understand.

3. Traditional investors are gradually accepting ETH staking

Traditional finance is waking up and is accepting ETH staking.

1. “It is becoming increasingly clear that the future of finance will run on Ethereum” — One River Asset Management.

2. “Ethereum’s transition to a global asset” Bloomberg.

My favorite quote is from Marcel Kasumovich (who also wrote One River):

“Ether is transforming into a low-risk, cheap bond.”

Cryptocurrencies are not usually considered low-risk assets, especially by institutional investors, but they are beginning to realize that this is biased.

Ethereum volatility is relatively high, but:

• No external debts will be incurred.

• The issuance is controlled by the program.

• Globally accessible and permissionless; Ethereum will not exclude Russia from the dollar system like the United States did.

Plus, volatility works both ways! Historically, in crypto, the longer you hold, the greater the positive returns from volatility:

4. New Risk-Free Rate

Wikipedia explains the term “risk-free rate”:

The long-term yield on U.S. Treasury coupon bonds is generally considered the risk-free rate of return. Government bonds are generally considered relatively risk-free to holders in their own country because there is no risk of default.

But there is also the risk that the government will "print more money" to meet its obligations, which will result in a lower value of the money being repaid. For investors, the consequences of the loss of value need to be measured by themselves, so strictly speaking, default risk does not include all risks.

In the past, the US dollar has been slowly depreciating. Because the depreciation rate was so slow, it was ignored for a long time.

But now the issue of dollar depreciation cannot be ignored.

As Ray Dalio of Bridgewater Associates has said, we are in a period of excessive sovereign debt, excessive money supply, and widening income inequality.

When printing a large amount of money becomes a certain event, is the "risk-free interest rate" really so risk-free? Of course, we can still stick to the so-called risk-free interest rate. But this is only because the government controls the printing press, so it is basically impossible for the government's sovereign currency to default.

But a negative real risk-free interest rate will inevitably lead to losses. Is the risk-free interest rate really "risk-free"?

The Fed's financial situation does not look too good. This could spur changes in the benchmarks for measuring risk.

Will ETH become the new risk-free rate?

• Ethereum can issue tokens at any time, but cannot hold any debt.

• ETH's "money printing" is controlled by an algorithm that is designed to provide the greatest benefit to the Ethereum community, rather than the greatest benefit to the social elite.

• ETH staking is globally accessible and does not require permission from a centralized institution; no one can prevent the earnings from being earned.

The world is expected to undergo more dramatic changes in the third decade after the millennium, and we will give new meaning to the "risk-free rate".

ETH is the new internet bond.

Get ready for a new trust paradigm built for the digital age.

Get ready to stake your ETH.