Ether – Feel the Burn: There are 120, 266, 981 Ether in circulation. And it’s slowly shrinking, down 0.2% since Ethereum’s Merge to proof-of-stake. It seems odd. After all, investors are paid in newly minted ETH as a reward for staking. But it’s a matter of who’s getting what. 441,840 ETH have been issued in staking rewards, whereas 696,037 ETH have been burned based on fees paid to settle transactions. Ethereum investors have a dual benefit, earning a ~5% annualized staking yield in an asset with declining supply. But is the staking yield attractive? For a trader, no. After all, markets expect volatility of 40-50% annualized in the next six months. But longer-term investors are earning a premium. Let’s look at it through the lens of FX markets. Spot USD.JPY trades at 138.42. The 3m forward is 136.48. Owning US dollars 3m forward translates to a 5.5% annualized return if markets don’t change over the next three months. Of course, this is just the difference between US and Japan 3m interest rates. The FX market lives by interest rate parity – there’s no arbitrage. Now, consider the same math for ETH.USD. The 1m differential between forward and spot is 2% annualized (Source: Bloomberg). Interest rate parity implies an ETH rate of ~3%, the US dollar interest rate of 5% less the 2% forward-spot differential. Staked ether is paying a large premium. Why? It’s a maturing market, with plenty of friction. Early investors are greasing the wheels of efficiency, earning extra for being early. It’s like the “Random Walk Down Wall Street.” The proverbial $100 is lying on the ground - efficient market theorists keep walking past it.