In the letter
- The Ethereum market is ripe for a big investor to break into the market, says crypto finance firm Amber Group.
- A “George Soros type of trade” where an investor hoards gas brands and the network deliberately collapses could be very profitable, the group suggests.
- The theory may have merit, say crypto insiders, even if it currently remains unlikely.
There is a possibility of destroying the economy of the world’s second largest cryptocurrency. ether– and it’s a system not unlike a trading strategy used by billionaire George Soros in the 1990s, who made billions of dollars short of the British pound.
According to researchers, this is over Amber Group crypto finance company, which published its results in a Medium article earlier this week.
The Ethereum network can burst. As of September 4th 97.16% of the network is used up. It’s not hard to imagine reasons for this: in the past three months, users have invested $ 8 billion in what’s called decentralized financing Protocols such as B. Lending Services. But the DeFi The 2020 boom and massive influx of money and activity into the Ethereum network could have some intended consequences.
Possibly some kind of George Soros trade to be played in Ethereum … the fees are sky high. Yield farm continues -> gas increased. Big settlement -> gas increased. Buying gas tokens directly could trigger a + ve feedback loop in the event of network congestion. Thread: https: //t.co/siG6Zl3QKX
– Amber Group (@ambergroup_io) September 2, 2020
All Ethereum protocols run on “gas,” the name for the fuel that is being paid for Smart contract Transactions. It is paid in ETH, the home currency of Ethereum blockchain Network. gas The fees are now ridiculously high – it is now reportedly about $ 5 to process your transaction in 30 seconds Ethereum Block Explorer Etherscan.
And there is a way to increase these fees even further, the Amber Group posits. One way to do this could be to hoard gas brands, a special type of character These are “essentially tokenized rents for block space,” wrote the research group.
The Amber Group continued, “They are using the space recovery mechanism in Ethereum. When you mint gas tokens, you store data in contract storage, and when you release (spend) it, you burn the tokens and release the previously saved storage element. “
If someone bought a whole load of gas tokens, it could waste even more space on the blockchain and make gasoline so scarce that the price would keep rising.
“As fees continue to rise, demand for gas tokens increases, which drives prices up, which in turn leads to more coinage. The minting process uses more block space … resulting in higher gas charges … and so on, “wrote Amber Group.
Eventually, Ethereum would become unusable and the price of ETH would come down. But if someone shorted ETH – that is, it was able to benefit from its collapse – could earn a lot of money.
It’s similar to being a billionaire George Soros did in the 1990s. He bought up all the British pounds he could, so the pound was overpriced. Then the Bank of England was forced to buy up the pound itself, which further overvalued the pound. When the pound fell in value, Soros, who cut the pound, made a lot of money.
Does Amber Group’s “George Soros Scenario” theory hold water?
Eden Dhaliwal, the global executive director of Conflux Network, said Decrypt “There are real concerns about large-scale acquisitions of gas tokens that would waste block space and lead to even higher gas prices. Adding speculative prices to the mix would, in my opinion, cause prices to rise again. “
But Eric Wall, CIO of Arcane Assets, is not enthusiastic about the thesis. “I don’t think this will create a lot of feedback pressure on the system,” he said.
“We are already suffering from insanely high gas costs. If this resulted in people flocking to gas brands in such droves that they were pushing people off the chain, it would likely have already happened. “
Wall said the strategy only makes sense if it is believed that gasoline will continue to rise. However, anyone trying this strategy must consider that software to scale Ethereum – which may free up network space – may be out in the next few months.
“Anyone who buys it now will definitely fear a loss of value if scaling solutions are made,” he said. “In my opinion, whether this fear is justified is a little too complex to answer. But yes, it is likely. ”
Still, investors and the markets in which they operate are not always rational – a saying that is often truer in crypto than in most other markets.
Disclaimer of liability
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.