After the consensus mechanism was converted from PoW to PoS, $ETH started to generate staking rewards, creating an arbitrage opportunity of "maturity mismatch" between it and its own LST liquidity staking tokens and LRT liquidity re-staking tokens.
Therefore, leverage, revolving loans, term arbitrage, and ETH staking yields have become the biggest application scenarios for lending protocols such as Aave, and have also formed one of the foundations of current on-chain DeFi.
That's right, the biggest application scenario for DeFi right now is "arbitrage".
However, don't panic or lose heart; the same applies to traditional finance.
The problem is that the maturity mismatch of ETH has not brought additional liquidity or other value to the blockchain industry or even the Ethereum ecosystem itself; it has only brought continuous selling pressure, since institutions will eventually have to cash out the ETH staking profits they have obtained.
A delicate balance of power has emerged between selling pressure, ETH buying, and deflation. While Vitalik dislikes the over-financialization of blockchain, he himself has opened this Pandora's box.
We can make a direct comparison between ETH and its liquidity tokens and the maturity mismatch of traditional bank deposits and loans.
Maturity mismatch is most commonly seen in banks accepting short-term deposits and issuing long-term loans. This process resolves a fundamental contradiction in economic activity: a misalignment of liquidity preferences.
A credit-based monetary system creates broad money through lending, effectively "monetizing" future productivity in advance. Despite the existence of cyclical bubbles, its core function is indeed to serve the growth of the real economy.
Without banks acting as intermediaries for maturity conversion, society's investment capacity will be strictly limited by the stock of long-term savings.
Maturity mismatch allows banks to pool idle funds and convert them into productive capital by taking on liquidity risk.
The risk lies in bank runs. Therefore, central bank lenders of last resort and deposit insurance systems are implemented to mitigate this risk. However, in reality, this "socializes" the maturity risk, transferring it to the entire society.
In the DeFi space, term arbitrage is pure leverage arbitrage, not value creation.
Institutions pledge ETH as stETH on Lido, then pledge stETH on lending protocols such as Aave to borrow ETH, and then repeat the first step to create a revolving loan.
In this way, ETH PoS staking returns are amplified, and it is profitable as long as the borrowing cost is lower than the Ethereum staking returns.
The borrowed ETH was not used to develop dApps or purchase assets, but was immediately returned to the staking contract.
While the Ethereum PoS mechanism becomes more secure with increased funds, the "circular staking" conducted by institutions through Lido and Aave is actually an arbitrage activity targeting cybersecurity budgets.
With the Dencun upgrade, the mainnet gas consumption is insufficient, ETH has returned to an inflationary state, and the selling of staking yield by institutions has created structural price suppression.
Ethereum Foundation researcher Justin Drake proposed the concept of "Minimum Viable Issuance" (MVI). If 15 million ETH staked is sufficient to withstand a nation-state attack, then the current 34 million staked ETH is actually an overcapacity for security.
In this context of "excessive security," the additional ETH inflation is no longer a necessary security expenditure, but rather becomes an inflation tax on coin holders.
This is the current situation. The number of stablecoins on-chain keeps hitting new highs, and ETH keeps being issued, but the biggest use case is for arbitrage through revolving loans in lending protocols, rather than adding liquidity to the market.
Therefore, Vitalik may not have realized that Ethereum's transition to PoS is actually a "high-stakes gamble." What is the gamble?
First, let's look at the returns from ETH staking and the returns from US Treasury bonds.
After the transition from PoW to PoS, ETH began to offer staking rewards, effectively turning it into a perpetual bond. Currently, stETH's APY is 2.5%, lower than that of US Treasury bonds. In other words, ETH staking yields are in a state of "negative interest rate differential" compared to US Treasury yields.
For institutions, buying US Treasury bonds or tokenized US Treasury bonds is a better investment than buying ETH. In other words, the current price of ETH is actually trading at a discount, reflecting its disadvantage relative to US Treasury yields.
Secondly, RWA introduces externalities. The total value of staked tokens determines the cost of an attack and directly impacts network security. Therefore, there may be a correlation between the total on-chain RWA value and the total market capitalization of Ethereum (ETH) and their potential upward correlation.
Finally, whether you are optimistic or pessimistic about Ethereum is a matter of perspective, or you can choose to take a neutral stance and simply look at the present.
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