Vether ($VETH) — This one gives me Bitcoin vibes

Crypto is full of experiments. But every now and then you come across an experiment with a concept so abstract and unproven that it takes a hot minute to understand its purpose.

Vether ($VETH) — This one gives me Bitcoin vibes

It's no secret that I am a big fan of taking existing economic concepts and test-driving them in crypto. I never studied economics, and so much of what I come across is new to me.

Today, I found something for which I have yet to find the concept name. I am not even sure that there is one to describe what is trying to achieve, but after spending a couple of hours analyzing it, I am intrigued.

Vether, an ERC20 token on Ethereum, is quite virtually burning money. Every day, it mints a fixed amount of its own and distributes it proportionally based on how much ETH (or other tokens) were burned that day.

Vether has epochs, daily distributions and Eras

Burning ETH? 😳

You heard that right. Vether is using a novel "proof-of-value" concept. The assumption is that if enough people destroy something of value (e.g., ETH) while creating something new, it provides "unforgeable costliness". If enough people are willing to verifiably and unforgeable destroy value for something new, it must be worth something, right?

The Vether contract theoretically allows you to burn anything of value on Ethereum. This is, however, not currently possible through the website. In the past, any ERC20 token with a price oracle could be auto-sold on Uniswap and get you a daily allocation. You could even burn assets with no value, in which case you got credit for the gas burned during that process. This was abused in some way and therefore removed.

If enough people participate, it should prove that Vether is valuable. And that is exactly what it is trying to be: a store of value. It sounds like a crazy concept that is entirely unproven.

Does it work?

Please bear in mind that this experiment has only run for 150 days. However, during this time, almost 3,000 ETH were burned. That's an average of 20 ETH per day. An insane amount of ETH going into a black hole.

But long story short: does it work? It would appear so, yes.

Considering its current market cap of $1,139,340, the Vether mined (or issued) during the initial 150 days are valued somewhere between 11-19% higher (depending on how you look at it) than the burned asset.

Based on historical prices

Values sourced from Coinmarketcap.

  • ETH burned: 2,902.50
  • USD burned: $923,533.69
  • Premium: $215,806.31 (~19%)

Based on the current price

Based on $350/ETH as per today's CoinGecko.

  • ETH burned: 2,902.50
  • USD burned: $1,015,875.00
  • Premium: $123,465.00 (~11%)

That's pretty impressive so far!

Eras, Halvenings & Mining

As the title says, this one gives me Bitcoin vibes. Not in the sense that if you buy it now and hold it, you'll one day be a billionaire. But more in the ways it is structured and engineered for fair and decentralized distribution.

Emission schedule for Vether showing all Eras and the Stock-to-Flow factor.

Eras

Similar to Bitcoin's epochs, Vether has Eras. Every Era is followed by a halvening, which halves the next Era's distribution, just like in Bitcoin.

Vether is auctioned off in Days of around 23.5 hours. 244 Days make up 1 Era. The 12th Era is 1064 Days long, and the total Emission Period is 10 years. The overlapping time periods ensure Day and Era changes happen across different time periods and seasons globally. (Source)

Halvening

Vether is currently in its first halvening, minting 2,048 VETH per day. Sometime in early January 2021, the Era will end, and only 1,024 VETH will be minted every day. By implication, this should increase its value.

The inflation rate of Vether for the first Era (which ends in early January 2021) is 2,048 new Vether per day. In order to keep a $1 value with Ether at a $240 value, you'd need to average 8.53 ETH burned each day. That seems doable with a large enough crowd. (Source)

Mining

Now, since Vether is distributed every day and varies in price on a day-to-day basis, it's best not to buy some today, but instead automatically "mine" it by destroying a little bit of ETH every day.

They built a little miner that does this automatically, every day. They explain how to use it in this GitHub repository. It does require some idea of how to code or at least how to deploy a JavaScript project.

vetherasset/vether-miner
Mining client for Vether. Contribute to vetherasset/vether-miner development by creating an account on GitHub.

This is all still a bit clumsy, but again, it's what gives me Bitcoin vibes. Here are two guides that will get you started if you have the patience to do it.

If you decide to set it up, please note that the miner requires the private key for the wallet to mine daily. 🚨 DO NOT provide it with a key for a wallet that you use for anything but Vether-mining. 🚨

Final thoughts

It's much too early to say if Vether is anything but an experiment. Its participants burning valuable Ether for something virtually worthless might turn out to be a very dumb move.

Ethereum also makes it hard to mine daily right now. I initially thought that I'd set it up and then get VETH, but that is not feasible with current Gas fees. The alternative is mining manually, weekly, for example.

It's all quite complicated, but so was Bitcoin in the beginning. I like the vibe I'm getting from this, and I see the value of something like Vether. It could provide a valuable hedge against the inflationary nature of Ethereum.

What are your thoughts on Vether? Do you think it can succeed, or do you think it will be a worthless token in the future? Let me know on Telegram.

— Robin