Grayscale Research Head Compares Ethereum to a Tiny Country

Grayscale’s Head of Research, Zach Pandl, shared a thought experiment on the platform X, depicting Ethereum as a tiny country that finances its accounting by printing money rather than through taxes.

Pandl framed his post as a “Quasi-brainstorm on $ETH issuance”. He then delved into the details, stating that Ethereum is “like a minimal nation-state” with one task—to protect property rights and enable value exchange.

He also discussed how Ethereum would fund its expenses, writing, “Ethereum doesn't raise taxes to fund public services.”

Pandl stated that the network is funded by printing money; in this case, that would be $ETH. Economists call this revenue source seigniorage, which is the profit the issuer of a currency earns simply by creating money.

Who Would Protect Property Rights in Pandl's Ethereum System?

According to Pandl, stakers are the group that would provide the service of protecting Ethereum. For their services, stakers are rewarded with newly printed $ETH.

This structure combines fiscal and monetary policy into a single cycle, something that doesn't typically happen in most economies.

This occurs in Pandl's sort of brainstorm because securing the network simultaneously expands the money supply.

It also highlights the difference between Bitcoin and Ether. BTC supply is limited to a fixed amount. Meanwhile, $ETH issuance fluctuates, increasing and decreasing based on network congestion and the volume of staked tokens. This makes it difficult to define scarcity for those viewing $ETH as a store of value.

Why Are the Math of $ETH Issuance Being Questioned Now?

Ethereum validators collectively earn about 700,000 $ETH annually in staking rewards, but reports indicate the ecosystem currently lacks the cash to pay core developers.

In June, former Ethereum Foundation member Trent Van Epps noted that maintaining the network's client teams costs roughly $30 million per year. He highlighted the danger of lacking a clear funding source amid the Foundation's reduced spending.

Various opinions have been voiced on what the foundation could do to fill this gap. One group believes the gap could be bridged by deducting a portion from the rewards flowing to validators.

However, critics of this move argue that it makes no sense if validators are willing to part with some of their profits. Their main argument is that there's no need to create a new distribution layer; instead, the network could simply issue less $ETH.

While Pandl's proposed nation-state model is not a solution to the funding shortage, it underscores that issuance is the treasury, and any debate over funding is a debate over what that treasury should be.