Ether (ETH), the native token of the Ethereum blockchain, needs “very little recovery in economic activity for the token economics to turn favorable,” Bernstein said in a research report, and that creates a strong story for the cryptocurrency’s “asymmetric growth model.”
With the success of layer 2 blockchains, ether can position itself as a category leader within the digital-assets market, the report added.
The Merge was the first of five upgrades planned for the blockchain and involved the shift from a proof-of-work (PoW) method of validating transactions and securing the network to a more energy-efficient PoS consensus mechanism. Layer 2s are separate blockchains, built on top of layer 1s that reduce bottlenecks. A layer 1 network is the base layer, or the underlying infrastructure of a blockchain.
The broker estimates that the break-even level of daily fees needed to fully offset gross ETH issuance is around 2,100 ETH, which is where current levels stand, meaning that there is a small reduction in the supply outstanding.
“Ethereum’s modular approach to scaling will improve transaction speed and affordability,” the note said, and lower fees will allow more users to come onto the blockchain.
The layer-2 scalability road map will lead to the launch and adoption of Ethereum-compatible zero-knowledge (ZK) rollups, and Bernstein forecasts monthly active users for the Ethereum stack will jump to about 500 million by 2032 from around 8.5 million now.
ZK-rollups are Ethereum layer 2 protocols that process transactions separately from the main network to help increase speed and lower fees.
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