Economics

Uncertainty Models

Velocity

This Working Paper refers to on-chain velocity because any actual transfer of value within the Bitcoin and Ethereum blockchain is eventually recorded on-chain.

M1 is the money supply of currency in circulation (notes and coins, non-bank traveler’s checks, demand deposits, and checkable deposits).

The M2 component includes M1 and adds in saving deposits, certificates of deposit (less than USD 100k), and money market deposits for individuals.

The token velocity is possibly the most complicated and most sensitive assumption to make out of all. Since PL2 does not have a close token sibling, ETH and BTC on-chain velocity are used as benchmarks. In addition, the velocity of M1 and M2 in USD money supply serve as approximate values. All reference points combined lead to an average velocity of 7, which was applied for modelling the transaction scenarios.

Find more details: Working Paper

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2022

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