Ethereum operates on a ground rent economy, and ETH serves as a form of seigniorage.

Author: Zuo Ye Wai Bo Shan

Now is the moment when the Earth is facing the crisis of the Trisolarans, and you are Yun Tianming, who has been living in the Trisolaran world for many years. Now, you need to convey some information to the people of Earth, so you have edited three stories:

Story One:

You are a young person from a small town, able to roam around the entire town. As you grow into a young adult and want to support yourself, there are two options in the market:

1. Mr. Liu, who is kind-hearted, is willing to sell you a piece of land. You can pay for it upfront, but the problem is that you lack enough funds to purchase the land. So, Mr. Liu becomes even more kind-hearted and offers to lease the land to you, only requiring you to hand over a portion of the harvest to him.

2. The county magistrate hears about this and, being kind-hearted as well, offers to let you lease a piece of public land in the county. You only need to hand over a portion of the harvest to the county after the wheat is ripe.

After careful consideration, you choose Mr. Liu's land, hoping to work hard and save enough startup capital to eventually buy a piece of land from him. However, due to natural disasters and other misfortunes, there is always a shortage of food, and sometimes the harvest is not enough to cover the rent. So, Mr. Liu lends you money to sow and eat, truly a generous person.

You also hear that the county magistrate has been unable to find labor to work the land and is preparing to sell the land to Mr. Liu. This might be a good thing, as selling it to Mr. Liu might allow you to lease it and eventually buy it after saving enough.

Story Two:

You are a young person from Earth, able to roam around the entire globe. As you reach middle age and want to settle down, there are two options in the market:

1. You can choose to pay for a house in full upfront, and then only need to pay property fees, utilities, and internet fees. However, after looking at the house prices and your own financial situation, the bank, being kind-hearted, offers to let you take out a loan to buy the house. So, you sign the loan contract, and the developer has money to pay the construction workers, and the local government receives civil servant salaries and pensions.

2. A Chinese intermediary on the other side of the ocean, also kind-hearted, offers you the option to buy the house in installments. As it is a period of interest rate reduction, the mortgage will become cheaper over time, and in the future, you only need to pay a small property tax each year. Once the mortgage is paid off, you will have permanent ownership.

After careful consideration, you choose to take on a mortgage, at least now the house is yours, and you won't have to pay taxes in the future. However, three to five years later, the government's services become increasingly scarce, community security deteriorates, and property prices seem to be gradually declining. But your mortgage payments occasionally decrease, although they are still relatively high compared to the current property prices.

At this point, you start to envy the paradise where only property taxes are paid. Property taxes are the economic pillar supporting community security, education, and community collective action, and Hayek's invisible hand will establish a paradise on earth.

Let's pause here for now, and the third story will be told later. In fact, the above stories are not complicated; they represent the ground rent/tax economic models of the agricultural era and the urban (industrial) era. In the agricultural economic model, people can only establish economic connections with the land, and being derogatorily labeled as hired laborers and lowly citizens is not the most tragic fate. The freedom of the wandering people, however, often leads to their downfall.

In the industrial era, land remains the most important means of production, but the economic value of food production rapidly declines, and the factories built on it become more valuable. Therefore, the income generated by renting land to build factories quickly surpasses that of the landowners. However, production still needs to be sold to realize its value, and selling to individuals can generate immediate cash flow. As a result, commercial real estate becomes popular. However, their weak risk resistance leads them to view real estate as the sole carrier of value, and the ground rent economy once again becomes the center of economic activity. Productive activities cannot compete with it, and "re-feudalization" will lead to the dominance of families like Mr. Liu's.

Suppressing ground rent and maintaining productive activities will free people from the shackles of the ground rent economy and allow more people to share in the profits of economic activities.

Ethereum operates on a ground rent economy, and ETH serves as a form of seigniorage

Before proposing more effective economic policies, let's take a look at the "land" policy of another global public space, Ethereum.

Similar to the Trisolarans, there is no concept of private property here, and open source and openness are its underlying principles. Similar to Linux, a small number of developers have created an economic scale of tens of trillions, and the unique feature of Ethereum is that Tokens can effectively change the value realization of Linux, which can only rely on donations and hot money, and the open asset issuance method also allows private property and public value to grow together. As long as ETH is used, everything becomes meaningful.

If everyone can understand the profound significance of using ETH, they will find that the recent debate surrounding the Layer2-Rollup expansion route is meaningless, whether it is Vitalik no longer supporting L2, or only proposing Stage 1 of Rollup.

The economic model of L2/Rollup leaves enough room for L1/Ethereum. Those that can compete with other L2s will be left, and the tokens issued are essentially backed by ETH. The higher the economic activity of L2, the more stable the value of ETH.

Similar to the relationship between the US dollar and stablecoins, the logic of ETH > L2 Token is consistent:

1. Stablecoin issuers need a 1:1 reserve of US dollar assets, so even if these dollars are stored in banks, an equivalent amount of dollars still circulates on the chain, playing its own value. If the on-chain dollars collapse, it will actually lead to people relying more on the dollars in the bank.

2. The value of using L2 Tokens lies in their role in L2 > L1, and L2 transactions need to be recognized and confirmed by L1. Therefore, the space in Blob is priced in ETH, so L2 Tokens actually depend on ETH. However, ETH does not depend on the stablecoin value or the rich usage scenarios of L2 Tokens.

What changes everything is not the "change of heart" of L2, such as the concept of custom Gas Token, nor is it the likes of Celestia and the external DA concept, but rather the ground rent route chosen by Ethereum.

First, we must acknowledge a fact: AppChains or RollApps have not become mainstream, and ETH Layer 3 is not a big threat, just as L2 Tokens cannot challenge ETH, neither can L3.

I have previously written an article about restaking, Triangle Debt or Mild Inflation: An Alternative Perspective on Restaking. Here, I can briefly explain that restaking will further strengthen the central position of ETH, as restaking is the act of monetizing Ethereum security and is priced in ETH.

This is why Vitalik separated Rollup from L2, and then further separated it into different stages. The apparent purpose of choosing the best of the best is to promote the decentralization of Rollup, but this baseline decentralization is Ethereum's control over it in times of danger, as well as its judgment on the funds flowing into Ethereum.

The reason why the L2 track has stalled is not due to fund dispersion, but rather the degree of centralization, such as the centralization of the sequencer leading to a decrease in L1 control.

In this sense, Ethereum is a distinct ground rent economy, and the activity and income generated by dApps on it are not important, at least not as important. Controlling the entire process of economic generation and distribution is more critical. For the Ethereum-ETH system, LRT/LSD conducting business in renting block space is much more friendly than L2/Rollup that does not listen and siphons off ETH revenue.

The Wisdom of Watering the Fish

Finally, Yun Tianming prepared a heartwarming story for Cheng Xin:

You are a universal-level saint, able to roam in five-dimensional space. As the Earth is about to be destroyed, and you are preparing for eternal cybernetic life, there are two options in the market:

1. Yun Tianming gives you Universe No. 647, which is very small but fully equipped with its own ecosystem, enough for you to survive here.

2. The Zeroer is broadcasting throughout the universe, hoping to return the universe mass stolen by various civilizations and restart the universe. Fish can only thrive in the vast ocean and become giant whales swimming in the four seas.

If you were Cheng Xin, which choice would you make?

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