Web3 Rent and Minting Tax

Source: Zuo Ye Wai Bo Shan

Now is the moment of crisis when the Earth is facing the Trisolarans, and you are Ye Wenjie, who has been living among the Trisolarans for many years. Now you need to convey some information to the people on Earth, so you have edited three stories:

Story 1:

You are a young person in a small town, you can wander around the whole town, until you become an adult and want to support yourself. Now there are two choices in the market:

1. Mr. Liu is kind-hearted and is willing to sell you a piece of land. You pay for the land upfront, but there’s a problem - you don’t have enough funds to purchase the land. So Mr. Liu becomes even more generous and offers to rent the land to you. All you need to do is give him a portion of the harvest as payment.
2. The county magistrate heard about it, and he is also kind-hearted, and said that you can come and take over a piece of the county’s public land, as long as you give a portion of the harvest to the county after the wheat is ripe.

After careful consideration, you chose Mr. Liu’s place and hoped to work hard to save enough startup capital to buy a piece of land from him. However, due to natural disasters and other misfortunes, there was always not enough food to eat, and sometimes even the harvest was not enough to pay the rent. So Mr. Liu lent you money to sow and eat. He is such a kind person.

Have you heard that the county magistrate still can’t find labor to work, and is ready to sell the land to Master Liu? This might be a good thing. If it’s sold to Master Liu, maybe you can still rent it, and save enough to buy it back.

Story 2:

You are a global youth, able to wander around the world, until middle age, when you want to settle down, there are two options in the market now:

1. You can choose to pay in full upfront, pay for the house with one hand and pay for property fees, water and electricity bills in the future. However, after looking at the housing prices and your wallet, the bank kindly offered to let you take out a loan to buy the house. So you signed the loan contract, the developer had money to pay the migrant workers, and the local government received salaries and pensions for civil servants.
2. Chinese intermediaries in the other side of the ocean have heard that you can buy a house in installments. It is now a period of interest rate reduction, and housing loans will become cheaper and cheaper. In the future, you only need to pay a little property tax every year. Once the housing loan is paid off, you will have permanent ownership.

After careful consideration, you choose to take on a mortgage. At least now the house is yours and you don’t have to pay taxes in the future. However, the government’s services are becoming fewer and the community security is deteriorating. It seems that housing prices are gradually declining, but the mortgage you pay occasionally decreases slightly, but it is still expensive compared to the current housing prices.

At this time, you start to envy another paradise where you only pay property taxes. Property taxes are the economic pillar of community security, education, and collective action. Hayek’s great hand will establish heaven on earth.

Pause for a moment, and the third story will be told later. In fact, the above stories are not complicated. They are the economic models of land rent/taxation in the agricultural era and the urban (industrial) era. Under the agricultural economic model, people can only have economic ties with land. Being degraded as hired laborers and lowly status is not the most miserable. The free and unrestrained homeless people have obtained freedom, but they often fall on the road overnight.

Land in the industrial era remains the most important means of production, but the economic value of grain production drops rapidly. Only factories built on it have value. Therefore, the revenue generated by renting land to build factories will quickly surpass that of landlords. However, production still needs to be sold to be realized. Selling to individuals can be directly realized, so commercial real estate is booming. However, their weak risk resistance ability leads them to regard real estate as the sole carrier of value, and the land rent economy once again becomes the center of economic activity. Productive activities cannot be compared with it. “Re-feudalization” will lead to the dominance of Mr. Liu’s family.

Suppressive rents, maintaining production activities, will enable everyone to break free from the shackles of rent economy and allow more people to share in the profits of economic activities.

Ethereum is a rent-seeking economy, ETH is a minting tax

Before proposing more effective economic policies, let’s take a look at the ‘land’ policy of ETH Square, another global commons.

Similar to the Trisolarans, there is no concept of private property here. Open Source and openness are its underlying concepts, similar to Linux. A small number of developers have created a trillion-dollar economy. The uniqueness of Ethereum lies in the fact that Token can change the value realization dilemma of Linux. It can only rely on donations and hot money. The asset issuance method without thresholds allows private property and public value to grow together. Everything is meaningful as long as ETH is used.

If everyone can understand the profound significance of using ETH, then they will find that the recent debate surrounding the Layer2-Rollup expansion route is meaningless, whether it is Vitalik no longer supporting L2, or only proposing the Stage 1 phase of Rollup.

The economic model of L2/Rollup is designed to be sufficient for L1/Ethereum, surpassing other L2 solutions. The remaining portion belongs to L2 itself, and the issuance of tokens is backed by ETH as the de facto reserve. The higher the economic activity of L2, the more stable the value of ETH.

The relationship between USD<>Stablecoin and ETH<>L2 Token is similar in logic:

1. Stablecoin issuers need to hold 1:1 reserves of US dollar assets. Even if these dollars are stored in banks, an equivalent amount of dollars will still circulate on-chain, playing its own value. If on-chain dollars collapse, it will instead lead to increased reliance on dollars held in banks;
2. The value of L2 Token lies in its role in L2 <> L1, and L2 transactions need to be recognized and confirmed by L1. The Blob space needs to be priced in ETH, so L2 Token actually depends on ETH. However, ETH does not rely on the stability or rich use cases of L2 Token.

What changes everything is not the ‘heart-reversing’ of L2, such as custom Gas Token, nor the external DA concept of Celestia, but the rental route chosen by Ethereum.

First of all, it must be acknowledged that AppChain or RollApp, etc. have not become mainstream, and ETH Layer 3 is not a big threat. If L2 Token cannot challenge ETH, then L3 will be the same.

I have previously written an article about staking. Here I can briefly explain that staking further enhances the central position of Ethereum (ETH) because staking is the process of monetizing the security of ETH and pricing it in ETH.

So Vitalik will separate Rollup from L2, and then separate different stages from Rollup, the purpose of optimizing the best surface in order to promote the decentralization level of Rollup, but the baseline of this decentralization is its control ability to ETH network in dangerous moments, and the judgment of fund withdrawal to ETH network.

The reason for the lack of activity in L2 track has never been the dispersion of funds, but the degree of centralization, such as the decrease in control under L1 caused by the centralization of the sorter.

In this sense, Ethereum is a distinct land rent economy, where the activity of dApps and the generated income are not important, at least not as important as controlling the entire process of economic generation and distribution. For the Ethereum-ETH system, LRT/LSD making business by renting block space is much friendlier than L2/Rollup that is disobedient and diverts ETH revenue.

point shaving Wisdom of Fish Farming

Yun Tianming also prepared a love story for Cheng Xin in the end:

You are a cosmic goddess, capable of wandering in the five-dimensional space, waiting for the destruction of the Earth, and preparing for the eternal life in the cyber world. Now there are two options in the market:

1. Yuntianming gives you a No. 647 small universe, although small, it is fully equipped, with a self-contained ecosystem inside, enough for you to live here;
2. The zeroer broadcasts in the universe, hoping to return the cosmic mass stolen by various civilizations, restart the universe, and let the fish grow strong only in the sea and become a Whale that travels the world.

If you were Cheng Xin, which choice would you make?