The prospect of Ethereum staking in 2023.

23-02-27 17:57

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Original author: James, Cryptocurrency Researcher

After years of testing and development, the "Big Merge" successfully transitioned Ethereum from Proof of Work (PoW) to a more efficient consensus mechanism - Proof of Stake (PoS). This has paved the way for Ethereum's future scaling plans and also allows DeFi to have its own native yield-generating tool - now ETH can be used to secure the blockchain in exchange for stable returns.

In traditional finance, income-generating assets will create huge markets, and the Staking track with native cryptographic yield tools will also allow Ethereum to have a larger ecosystem.

The upcoming Shanghai upgrade signifies that this year, liquid staking on Ethereum and the entire crypto industry is an important narrative. Ethereum liquid staking is a new development trend that allows users to unlock their staked ETH, thereby gaining liquidity and using it in the DeFi ecosystem.

Active Staking Ecosystem

Ethereum staking is a key feature of PoS Ethereum, which allows users to stake (lock) a certain amount of Ether on the Ethereum network to become validators of the network. This process not only allows users to earn a stable return of about 5-8%, but also helps to strengthen the security and scalability of the Ethereum network.

Currently, the largest market share in the liquid staking product industry belongs to Lido Finance (stETH). It is not only a leading liquidity staking protocol, but also one of the largest DeFi protocols in terms of TVL. On the Lido platform, users can stake ETH at a 1:1 ratio in exchange for stETH, which can be deployed on other platforms such as Yearn and Aave to increase users' capital efficiency.

Generally speaking, there are four ways to stake ETH currently:

1. CEX Type/Full Custody: Using the Staking solution of the trading platform, there is no need to create validation keys and withdrawal keys. Fund management and node operations are completely handled by the trading platform, which belongs to the full custody mode.

2. Pooled Staking: Staking schemes such as Lido and Rocket Pool. Users do not need to create validation keys and withdrawal keys, and node operations and fund management are handled by the operator in the pool. This is a near fully-managed model, but the Pooled Staking scheme provides more operational flexibility.

3. SaaS type (Staking as a Service): Through the Staking service provided by third-party service providers, users need to create their own validation key and withdrawal key, but the operation and fund management of the node are completed by the third-party service provider, which belongs to the non-custodial mode.

4. Solo Type: Requires purchasing hardware and setting up nodes, managing validation keys and withdrawal keys on your own, and belongs to a completely decentralized model.

Bullish Staking Landscape

Since the Ethereum merge, the total amount of ETH has decreased by more than 38,000 through burning, with an annual inflation rate of -0.07%. In addition to regular DEX, ETH transfers, stablecoins, and wallets, NFT applications have also become active contributors to ETH destruction in the past 30 days. Institutions have been buying BTC and ETH, and one of the reasons for the recent market improvement may be that multiple funds and institutions have injected nearly $1.6 billion in liquidity into the cryptocurrency market.

From the perspective of ETH stakers, the majority of staked ETH is priced between $2500-$3500, with only approximately 21.1% of ETH priced below $1600. From a principal and interest perspective, meaning the staked ETH principal plus rewards earned, 59% of stakers are still "underwater," meaning the current ETH price is lower than the price at which they staked. Stakers generally have a long-term bullish outlook on the Ethereum network and participate in staking during bull markets, so it is unlikely that they will choose to withdraw their staked ETH after the Shanghai upgrade.

Data source: Dune

Due to the fact that most ETH stakers are currently in a state of loss, there is almost no economic incentive to sell ETH at the current price. The price of approximately 2 million ETH staked is in the range of $400-$700, representing the earliest stakers in December 2020, most of whom had illiquidity due to the lack of knowledge about liquidity staking at that time. The Shanghai upgrade will eliminate the liquidity risk and uncertainty of the lock-up period, which will directly affect those impulsive short-term investors.

Shanghai's upgrade will change ETH from "long-term lock-up" to "current income", which may attract a large number of new participants and bring some potential buying pressure to ETH, especially in the case of ETH's long-term appeal to institutional investors.

Good Pledge Prospects

So, what is the prospect of Ethereum staking? The return rate of Ethereum staking is usually between 5-8%, which is more attractive than most traditional investments. This makes it a reliable source of income, especially in the current bear market situation.

In addition, through pledging, more expansion plans for the Ethereum network can be implemented in the future. This will accelerate the development of decentralized applications, thereby increasing the attractiveness of the Ethereum network.

With the launch of Ethereum PoS, Ethereum staking will become a necessary process. Therefore, the importance of Ethereum staking will be more prominent. Overall, the prospects for Ethereum staking are very optimistic, as it can provide stable returns and improve the security and scalability of the Ethereum network.

The Ethereum staking protocol is a constantly evolving field in the world of cryptocurrency. As the Ethereum liquidity staking protocol is an open market, competition is becoming increasingly fierce. This means that users have more choices to choose from and can get more competitive rates and better services.

SaaS competitiveness

Among the numerous Ethereum staking solutions, the most noteworthy is the SaaS (Staking as a Service) solution, which has many advantages and prospects compared to other solutions.

First of all, SaaS solutions provide users with a convenient way to participate in ETH Staking. Users only need to pay the mining pool to enjoy automated Staking services without dealing with tedious technical details and management, which is very user-friendly for ordinary users.

Secondly, SaaS solutions are usually provided by professional Staking service providers who have rich experience and professional technical teams. They can adjust their server capacity according to market demand and provide better services, such as improving node security and stability, reducing Staking penalty risks, and so on.

Finally, SaaS solutions can also promote the development of decentralization. From a technical perspective, mining pools cannot touch user funds and only provide operation and maintenance services, which is conducive to the decentralization of Ethereum nodes. This means that users no longer need to choose pools with a high network share, which can cause the occurrence of "super nodes". These measures will help promote the decentralization of Ethereum.

Overall, the SaaS model, as a convenient, secure, reliable, and scalable Staking solution, has a very broad development prospect and will also provide more opportunities for users to participate in Staking.

One of the most representative SaaS service providers recently is Ebunker. Ebunker adopts a non-custodial mode, which is different from other custodial Staking pools. Ebunker does not touch or manage users' funds, which means that users can have full control over their assets. Users interact directly with the official Ethereum staking contract, without the need to let third parties know their withdrawal private keys. Ebunker only provides node operation and maintenance services.

Compared with the traditional centralized model, this model allows users to independently manage their own private keys, avoiding the risk of user funds being compromised by third parties. Therefore, the SaaS model has significant advantages in protecting user fund security.

Meanwhile, the open-source code of Ebunker allows users to view and verify at any time, so every reward for execution layer and consensus layer is completely transparent and directly corresponds to on-chain transactions.

Of course, although the SaaS model has many advantages, there are also some shortcomings, such as the inability to provide LSD solutions. In the SaaS model, users' private keys are completely managed by the users themselves, and third-party service providers cannot directly handle user funds, so they cannot issue LSD. This needs to be noted when using the SaaS model.

Finally, everyone interested in Ethereum is welcome to participate in maintaining the Ethereum network through staking, making Ethereum a truly global decentralized super network.