Shark Tank investor Kevin O’Leary supports the idea that Ethereum’s recent EIP-1559 update can turn Ethereum into “ultra sound money.”
In a video posted to Cameo, a platform where users can pay influential people to create personalized videos, O’Leary talks about the potential benefits of Ethereum’s recent EIP-1559 and its upcoming EIP-3675 updates.
EIP-1559 takes a portion of Ethereum’s transaction fees and burns them instead of distributing them to miners. EIP-3675 switches Ethereum from proof-of-work (POW) to proof-of-stake (POS).
O’Leary reads a script that highlights the potential impacts of these two key updates.
“When you combine [EIP-1559] with EIP-3675, which switches the network to proof-of-stake and is coming in a few months, Ethereum will become deflationary. This means the number of coins in existence will begin to decrease. If Bitcoin is sound money because of the 21 million coin supply ceiling, Ethereum enjoys the same benefit now. It’s ultra sound money because there’s no supply floor and at that point. Ethereum will be thought of like a traditional business and can be analyzed like one, sort of like using a cash flow model.”
O’Leary also compares the mechanisms and tokenomics of the Ethereum network to a successful business model.
“Revenue: customers pay transaction fees to Ethereum in order to interact with it. Expenses: Ethereum pays its employees which are proof of stake validators to secure the network. Revenues [are] expected to be higher than expenses so the business is profitable.
So if that happens, what happens to the profits?
They’re burned, and ETH supply is reduced. This is the equivalent to Ethereum doing a stock buyback. Think of it that way. It’s also the equivalent to distributing the profits to investors and ETH holders in the form of a dividend. Ethereum is going to be one of the only blockchains, if not the only blockchain that is generating profits and expects to have a price-to-earnings ratio of about 15 to 20 times, which is a lot better than some tech companies.”
The Shark Tank billionaire previously revealed that he owns a small amount of ETH and he’s betting big on the decentralized finance (DeFi) space.
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