Ethereum
Potential for growth and innovation
Ethereum is the largest proof-of-stake network by market capitalization. Currently, 32.5 million ($99 billion) ETH has been staked, and the amount of ETH staked has increased by 78% since Ethereum’s inception. Upgrade in Shanghai in April 2023.
Despite impressive growth, only 27% ETH in circulation has been staked. In comparison, other proof-of-stake networks such as Solana, Cardano, SUI, Avalanche and Aptos have a much higher staking ratio, between 48%-81%.
In other words, staking on Ethereum may increase, potentially fueled by the adoption of Liquid Staking or Liquid Restaking tokens on layer 2 networks and DeFi protocols.
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Source: 21co on Dune Analytics
EIP 7251 to generate more volume
Ethereum’s next upgrade, Pectra, will likely take place by the end of 2024 or early 2025. One of the key proposals, EIP 7251, can provide better UX for validators to achieve yield bet. This proposal will increase the maximum effective validator balance from 32 to 2048. Major staking service providers, like Coinbase, manage over 130,000 already have validators. Increasing the maximum effective balance allows these providers to consolidate the number of validators and ultimately increase efficiency and reduce operating cost.
Another advantage is that solo players can enjoy auto-compounding their staking rewards. At the current stage, the staking reward of solo bettors will be automatically removed from the execution layer. The reward received will no longer accumulate staking returns. Solo stakers will need to wait until they have 32 ETH before launching another validator to capture the staking reward.
Recovery is the new catalyst
The recovery has been an exciting first on Ethereum. Combined with EigenLayer’s points program and liquid re-staking protocols, it creates a new wave of demand for ETH staking. In March and April 2024, respectively, 38% and 48% of staking volume came from liquid staking protocols.
At the same time, more 65% ($9.7 billion) of EigenLayer’s TVL comes from native ETH, showing the level of traction the re-easing is capable of bringing to Ethereum. With the maturity and adoption of re-staking, we may see greater staking volume from re-staking and liquid re-staking in the future.
However, it is also important to note that rebalancing comes with risks, such as smart contracts and the quality of actively validated services. Since EigenLayer’s reward and discount mechanism has not been activated, we have yet to see the full ramifications of the takeover, both good and bad.
Source: 21co on Dune Analytics
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.