The second largest crypto-asset in the world is progressing rapidly to establish itself as the cornerstone of the new decentralized economy. This month two important developments took place, the launch of Ethereum futures and the progress on Ethereum Improvement Proposal (EIP 1559). A brief overview and implications are presented below.
CFTC Regulated ErisX Ethereum Futures
On May 11, ErisX launched the first Ethereum futures contract to allow individuals and institutional investors to acquire access to physically delivered futures contracts (ETH – USD) with monthly and quarterly expirations. The futures exchange will function alongside ErisX spot exchange. The futures exchanges is licensed by the Commodity Futures Trading Commission (CFTC) and complies with all relevant regulatory framework.
The launch of the futures contract for Ethereum will benefit all stake holders in the premier smart contract blockchain ecosystem. It will have long term beneficial implications for miners, hedges, speculators, users and projects that utilize the Ethereum blockchain. The newly available futures contracts will enable and facilitate broader participation from all segments, provide resiliency and robustness to the Ethereum markets, aid in increasing liquidity, improving risk management, help with price discovery, efficient integration of information and assist with price / instrument transparency.
Ethereum Improvement Proposal 1559 (EIP-1559)
Ethereum Improvement Proposal 1559 (EIP-1559) refers to the proposal to drastically optimize the monetary policy of the blockchain. Although it was proposed long before, it has been getting a lot of buzz again lately. The second implementers call occurred on May 28 at 14:00 UTC for various development teams to discuss the way to move forward on the proposal. The improvement proposal, once implemented, will make the Ethereum monetary policy smoother. more predictable, solve fees estimation problems and burn ETH supply.
EIP 1559 establishes a base fee (stylized BASEFEE in the proposal) over the highly inefficient auction type mechanism currently present on Ethereum, as well as providing a mechanism for burning the majority of the transaction fee. The EIP 1559 will add scarcity to the Ethereum supply and may even cause negative issuance, in the long term. It will increase the value of the ETH tokens with each transaction and provide for long term security of the network. Everyone on the network will benefit equally, instead of only the validators receiving fees and block rewards currently.
The base fee mechanism will adjust the fee automatically on the Ethereum blockchain, depending on the congestion of the network. For usage over 50% of the network capacity, the base fee will increase. For usage less than 50% of the network, it will decrease. The mechanism will establish a market rate for processing transactions on the Ethereum blockchain, however to get the transactions processed sooner, the senders can still pay a little more. So even though the base fee would be burned to add scarcity, validators will still receive the extra amount over the base fee, sent by the users.
Upon implementation of EIP 1559, validators will benefit almost exclusively from the block rewards and wont receive the transaction fees or base fee (except for the extra amount over base fee) that they do today, complementing the Ethereum blockchain policy of prioritizing security and issuing the minimum practical amount to validators for achieving that.