DAO as a hedge within Ethereum
Since the genesis block, the supply of Ethereum will always be increasing by 18,000,000 every year (slightly decreasing with the release of Casper PoS). Despite a decrease in inflation rates as time goes on, the increase in supply results in perpetual sell-pressure for Ether (ETH).
During the first 2 weeks of it’s creation phase, The DAO will be creating 100 DAO Tokens for every 1 ETH. During the next 10 days, the rate increases by 0.05 ETH daily. During the last four days of the creation phase, the rate remains at 100 DAO/1.5 ETH. No more will be created after this.
Some points to consider…
- The DAO is disruptive and being so definitely faces challenges, especially in the regulatory realm. However, these are problems any first mover typically faces and most importantly, they can be resolved. The DAO is capable of adapting, evolving, and thriving (especially with over $150m in funding).
- As a result of the increasing exchange rate, each DAO token should be worth 50% more by May 28th (provided you exchanged during the first two weeks).
- Top balances during first two weeks accounted for over 1/3 of all DAO created.
- Unlike ETH, there is no continuous sell pressure from more DAO tokens being created. From an inflationary perspective, DAO is to ETH similar to (possibly improved version of) how gold is to currencies.
- DAO tokens are capable of generating passive income (pending success of a proposal).
- Currently 11,000,000+ ETH locked up in DAO creation process (13% + of entire Ethereum supply!)
- DAO is now a big part of Ethereum’s ecosystem, especially with access to funding it has now, it should continue to attract the highest quality projects and brightest minds in the cryptocurrency space (Shark Tank for Ethereum/Crypto). Any benefits Ethereum experiences should also flow to The DAO. However, the opposite also holds true, The DAO will probably fail if Ethereum fails.
- If you own a DAO token, you have some ETH and whatever else is part of The DAO.
- Proposal funding will create sell pressure on ETH since DAO will most likely have to sell off a portion of its ETH to do so. This does not necessarily create any sell pressure on DAO itself. Since voting on proposals require possession of DAO tokens, there is an incentive to hold onto them especially near voting periods for proposals.
The value of DAO will be very volatile for the short-term but based on current observations, I believe DAO tokens can act as a hedge for ETH in the long run, with the added benefit of also being capable of maintaining positive correlations in value with ETH.
Edit: $ETH inflation will decrease slightly once PoS is implemented in Ethereum.