The Current State and Future Development of Ethereum Staking

Ignas

23-04-27 16:52

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Original author: Ignas

Original translation: Kxp, BlockBeats

The present and future of Ethereum's staking mechanism can be summarized in the following four aspects:

· Market leader

· Best yield

· Trend

· Future catalyst

ETH has the best Tokenomics in Crypto. If it still uses the PoW algorithm, $4.7 billion worth of ETH will be issued - more than $UNI's total market value of $4 billion. In addition, the supply of ETH is constantly decreasing and is in a deflationary state because we are still in a bear market.

ETH has the lowest staking rate (14.8%) while offering a competitive annual interest rate of about 4.5%. In contrast, token distribution on other blockchains is much more concentrated, with insiders, teams, and early investors actively staking to earn returns, which also means that more ETH can (and will) be locked up.

Ethereum’s newly built staking infrastructure is also one of the reasons for its low staking rate. Among them, Lido leads with a staking rate of 30%, followed by centralized exchanges Coinbase (12.5%), Kraken (6.8%), and Binance (5.4%). In the future, I hope that staking can become more decentralized.

This is exactly what is happening - Kraken, Coinbase, and Huobi have lost market share over the past month. In fact, 36% of all ETH staking withdrawals came from Kraken.

For ETH, staking withdrawals are considered a bearish signal. More withdrawals than deposits means long-term holders are selling, and in fact, net inflows have been negative since the Shanghai upgrade.

Currently, about 40% of ETH stakers have negative ETH PnL, and 29% have staked their ETH at current prices. Correct me if I'm wrong, but this is a bullish signal to me.

ETH staking is the best risk and return adjusted opportunity to achieve financial freedom, and I recommend doing it in the following order of priority:

· Protect ETH deposits

· Leave it alone

· Maximize ETH returns

Don't chase the highest yield, protect ETH principal from hacks and vulnerabilities.

If you want to protect principal, consider using blue chip DeFi protocols or top CEXs. Those who hold the opposite view believe that if you have less than $10,000 in principal, then you are better off staking on a CEX or not staking at all, as the on-chain transaction fees of staking may eat up all the returns.

Liquid staking derivatives are one of the best ways to earn returns. I would recommend stETH or rETH due to their high adoption in DeFi. You can lend stETH/rETH, borrow stablecoins to pay for daily needs, and let the returns pay off your debt, which will probably average out to 4-5% APY.

With Rocket Pool, you can run your own node to earn 7.01% APR + RPL rewards. This is great for individuals looking for low-risk node operations, but you need some professional skills. However, there are risks in doing so - if there is a problem with the node, you will also lose money.

You can also increase your returns through leveraged staking, yield aggregators, and farms. For example, Instadapp Lite offers 8.5% APY. It converts ETH into stETH and leverages it for PoS staking against standard ETH to get higher rewards.

Currently, there are 83 protocols available for ETH staking, and their TVL is about to surpass DEX. Although only 15% of ETH is staked, the scale of liquid staking derivatives is larger than lending, cross-chain bridges, and CDP stablecoins. Not only that, it will continue to grow.

In addition, there is a new generation of staking protocols coming soon, and if you like adventure, you can get more than 50% APY. In this regard, my advice is that you can earn income by investing in their tokens instead of risking your best chance of financial freedom-ETH principal.

Eigenlayer is probably one of the most watched protocols, which increases the security of other networks through re-staking. The protocol will increase the demand for ETH staking, but the risk will also double.

Distributed Verification Technology (DVT) is another development direction. Currently, it takes 32 ETH to run an Ethereum node and has high technical requirements. DVT simplifies this process by enabling "squad staking", allowing teams to collectively stake different amounts of ETH.

Currently, several protocols are working to simplify staking while increasing decentralization and security, including:

· divalabs

· Obol Labs

· ether.fi

· Stakehouse

· ssv network

Ethereum is considered the best choice for financial freedom in Crypto. Currently, it is safe to earn 5-9% APY on ETH, but since it is a bear market, on-chain activity is low, and when the bull market comes, Gas usage will surge, increasing staking income and ETH destruction.

Higher yields increase the attractiveness of ETH as a passive income, driving prices up. Although we may need to sacrifice some yields, the ultimate goal is to protect the principal of ETH. To get the most upside and reduce risk, I would bet on LSD/DVT Token.

As for the best staking token, this is another topic that we will discuss later.