I have asked some questions about deflationary ETH in the recent past. Let me present the counterargument: L1 fees are going to remain high forever.
- There are a bunch of wealthy people and entities that’ll always settle on L1. $30 to borrow from Compound or $3 to send transactions in <13 seconds may seem outrageous to a normie, but compared to tradfi institution dealing in millions this is an incredible leap forward.
- There are certain activities like high-value NFTs that’ll always remain on L1.
- L2 will simply onboard a new class of users that never used Ethereum before because it was too expensive.
- This will push L1 gas higher as now the rollups are competing with whales and financial institutions for L1 gas.
- Of course, there’ll be plenty of people who are now using L1 that’ll move to rollups, but in the long-term, L1 gas is up only.
My only concern is the data shards release, where we’ll see an abrupt 18x supply shock on the fee markets overnight. I wrote about it on Ethresear.ch, with some potential solutions. But even this will be saturated in the long term.
PS: Just to be clear, having presented both sides, my conclusion remains that the market will find an equilibrium with inflation approaching 0% long term.