Vitalik may not have realized that transitioning Ethereum to PoS actually planted a financial "landmine"

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After converting consensus from PoW to PoS, $ETH With staking income, there is room for “term mismatch” arbitrage between your LST liquid staking token and LRT liquid re-staking token.

As a result, leverage, revolving loans, and term arbitrage ETH pledge income have become the largest application scenarios for lending protocols such as Aave, and they also form one of the foundations of current on-chain DeFi.

That’s right, the biggest application scenario of DeFi is “arbitrage”.

However, don’t panic and don’t be discouraged, the same is true for traditional finance.

The problem is that the term mismatch of ETH does not bring additional liquidity or other value to the blockchain industry or even the Ethereum ecosystem itself, but only brings continuous selling pressure.

A delicate offensive and defensive relationship has been formed between selling pressure and ETH buying and deflation. Although Vitalik does not like the over-financialization of blockchain, he opened this Pandora’s box with his own hands.

We can visually contrast ETH with its liquidity token with the mismatch between traditional bank deposit and loan terms.

The most common mismatch is that banks absorb short-term deposits and issue long-term loans. This process solves a fundamental contradiction in economic activity: the dislocation of liquidity preferences.

A credit-based monetary system creates broad money through loan issuance to “realize” future productivity in advance. Despite the cyclical bubble, the core is indeed to serve the growth of the real economy.

Without banks as intermediaries for term conversion, social investment capacity will be strictly limited by the stock of long-term savings.

The mismatch of terms allows banks to concentrate everyone’s idle funds and convert them into productive capital by taking liquidity risks.

The risk lies in the run. As a result, there will be a central bank lender of last resort and a deposit insurance system to combat risks. But in fact, this is “socializing” term risk, that is, passing on it to the whole society.

Term arbitrage in DeFi is pure leverage, not value creation.

Institutions stake ETH as stETH on Lido, stake stETH on lending protocols such as Aave, lend ETH, and repeat the first step for revolving loans.

In this way, amplifying ETH PoS staking yields is profitable as long as the borrowing cost is less than Ethereum staking yield.

The lent ETH is not used to develop dApps or purchase assets, but is immediately returned to the staking contract.

Although the Ethereum PoS mechanism will become more secure due to increased funds, institutional “circular staking” through Lido and Aave is actually an act of arbitrage on the network security budget.

With the Dencun upgrade, the mainnet gas consumption is insufficient, ETH is back in an inflationary state, and institutional selling of staking income has formed a structural price suppression.

Ethereum Foundation researcher Justin Drake proposed the concept of “Minimum Viable Issuance” (MVI). If 15 million ETH staked is enough to defend against state-state attacks, the current 34 million staked is actually a security overcapacity.

In this context of “excess security”, the new ETH inflation is no longer a necessary security expenditure, but has become an inflation tax on coin holders.

This is the status quo. The number of stablecoins on the chain has been reaching new highs, and ETH has been being issued, but the biggest scenario is revolving loan arbitrage in lending protocols, which does not supplement liquidity to the market.

Therefore, Vitalik may not realize that switching from Ethereum to PoS is actually a “big gamble”. Bet what?

The first is ETH staking income and U.S. Treasury yield.

After converting from PoW to PoS, ETH has staking yields, and ETH effectively becomes a kind of perpetual bond. The current stETH APY is 2.5%, which is lower than US bonds. In other words, ETH pledge income is in a state of “negative spread” compared to US Treasury yields.

For institutions, buying ETH is not as good as buying US bonds or tokenized US bonds. In other words, ETH’s price is currently effectively discounting its disadvantage relative to U.S. Treasury yields.

The second is that RWA brings externalities. The total value of staked tokens determines the cost of the attack and directly determines network security. Therefore, there may be a resonant rising relationship between the total value of on-chain RWA and the total market value of ETH.

Finally, whether or not to be optimistic about Ethereum is a position, and of course you can also choose a perspective that does not stand - only look at the present.

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