- Staking yields will become more appealing as the Ethereum 2.0 network popularises the proof-of-stake consensus mechanism
- Next year, Ethereum will complete the switch from proof-of-work (PoW) to proof-of-stake (PoS)
- Proof-of-stake coins aren’t the only cryptocurrencies that JPMorgan is paying attention to
According to a new JPMorgan report, the launch of the energy-efficient Ethereum 2.0 network will popularize the proof-of-stake consensus mechanism and make staking yields a more appealing source of income for both institutional and retail investors. According to the authors, holders of staked coins on PoS blockchains are currently earning $9 billion per year from their staked holdings.
In a report released this week, two senior analysts at JPMorgan argued that as blockchains with more energy-efficient networks than bitcoin and ethereum gain in popularity, a new way to make money known as staking will gain traction as a source of revenue for institutional and retail investors alike, defying crypto skeptics.
Ethereum 2.0 is approaching a major milestone in its short history, according to some: 6 million staked Ether (ETH). On Wednesday, the Ethereum Launchpad, Ethereum 2.0’s portal for validators to stake their coins, revealed 5.9 million staked Ether and nearly 180,000 validators powering the blockchain.
This is slightly more than the minimum 32 staked Ether required to activate the validating software and join the network as a validating node. At the average crypto exchange price at the time of publication, this equates to a $66,560 investment to join the network as a validator.
Analysts predict that when Ethereum switches from proof-of-work (PoW) to proof-of-stake (PoS) next year, payouts will more than double to $20 billion. By 2025, they expect staking yields in the blockchain industry to have doubled to $40 billion.
Staking generates an estimated $9 billion in revenue for the crypto industry each year, according to the report. The authors predict that after the launch of the long-awaited Ethereum 2.0 next year, the switch to proof-of-stake will spur adoption of the alternative consensus mechanism, with staking payouts reaching $20 billion in the quarters following the launch of Ethereum 2.0 and $40 billion by 2025.
The ability to earn a consistent positive yield by staking cryptocurrencies, on the other hand, is dependent on market volatility. For example, ethereum competitor Solana allows investors to earn SOL rewards in exchange for their native SOL cryptocurrency, which is currently valued at $32.76. There would be no real gains if the SOL token’s value plummeted. This is true for any cryptocurrency that requires staking. Staking will likely become a more reliable source of revenue as the crypto market matures and volatility decreases.
The two senior analysts also compared the financial incentives offered by staked cryptocurrency to cash, cash equivalents, and fixed income instruments such as US Treasury bonds: Staking yield can reduce the opportunity cost of owning cryptocurrencies compared to other asset classes such as US dollars, US Treasury bonds, or money market funds, all of which generate some positive nominal yield. In fact, we see the yields as an incentive to invest in the current zero-rate environment.
Several crypto experts recently voiced their opinions on ETH 2.0. Alex Wearn, CEO of IDEX, believes that ETH 2.0 has the potential to increase adoption while also posing risks of centralization. Adoption will spread as costs decrease. He did, however, mention that proof-of-stake consensus will allow ethereum whales to hold and run governance. Following its recent decline from its yearly all-time high, ETH has seen a strong rebound. ETH peaked at $4,300 before tumbling to $1,700. Following this week’s small market rally, it is currently trading at $2,150.
According to StakingRewards, annual staking rewards for the top ten cryptocurrencies by staked capitalization range from 3% to 13%. Although these are nominal yields, their real returns are also influenced by the underlying currency’s market exchange rate.
According to the report, the current market capitalization of proof-of-stake tokens is over $150 billion. The ability to earn yield from crypto assets through staking, according to the authors, will make digital assets more appealing as an asset class and may help to grow mainstream adoption of cryptocurrencies. Ethereum 2.0 was supposed to launch in January 2020, but it will now enter its final launch phase in 2022.
At the moment, 5.91 million ETH has been staked on the ethereum launchpad. On the network, this equates to nearly 180,000 validators. The most recent figure represents a significant increase from six months ago. The current market capitalization of staked ETH is $12.7 billion. For late December, this is a significant increase. In December, 1.6 percent of the ethereum supply, or $1.1 billion, was staked. Approximately 5% of the supply is currently being staked.
The increase in ETH staked comes after the ethereum network’s gas fees dropped dramatically. One of the major issues that the blockchain has faced in the recent bull market. Earlier this week, the average transaction on the Ethereum blockchain cost $0.15. Transaction prices on the network reached a new yearly low as a result of the drop in gas fees.
Staking, according to the report’s authors, will become a growing source of revenue for cryptocurrency intermediaries like Coinbase, especially after Ethereum 2.0 is completed in 2022. According to the report, staking will bring Coinbase $200 million in revenue in 2022, up from $10.4 million in 2020.