Ethereum’s Merge, Institutions, Layer-2, and Liquid Staking


Source: Adobe/borislav15

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  • The demand for participation could increase even more when, after the merger, Ethereum introduces the ability to withdraw ETH.
  • Given the wait for Ethereum 2.0, the sector will see growth in participation emerge elsewhere.
  • Expect the emergence of a form of participation in all layer two solutions.
  • The arrival of institutional stakeholders and innovative staking opportunities could be among the trends this year.
  • The rewards for staking may decrease with a higher number of participants.

stakeout is apparently ready for a big 2022. With Ethereum (ETH) planning an eventual move to a proof-of-stake (PoS) consensus mechanism this year, will bring staking to thousands, if not millions, of users who have never tried it before, and growth in ETH staking is likely to drive similar growth in other places.

But according to industry figures who spoke with cryptonews.com, general growth is not the only trend that staking can expect in the coming months. We can also expect to see more institutional interest in participation, as well as the growth of liquid participation, participation through layer 2 protocolsand via GameFi (decentralized applications (dapps) with economic incentives) and NFT platforms

And while the triple-digit rates of return offered by some staking services may not be sustainable in the long term, they are likely to remain competitive for the foreseeable future, which will help spur continued staking growth.

The growth fueled by the Ethereum merger

There is no doubt that staking had a good 2021. According to the data provider Stake.us7.7% of all coins in the crypto market were staked in the fourth quarter of the year.

Stake Q4 2021 Report Also found Proof-of-stake crypto assets accounted for 31% of the overall market capitalization, up 127% from the previous year. It also reported that staking rewards totaled $15 billion in 2021, an increase of 939% over the previous 12 months.

However, as big as the bet was in 2021, industry participants agree that it will grow even bigger this year.

“Yes, I expect this to increase significantly, fueled by increased participation in Ethereum. The fusion’ [when the current Ethereum Mainnet “merges” with the beacon chain PoS system]which is about 6 months away, will increase the returns of ETH participants by paying them the tips included in the blocks,” said Tim Ogilvie, CEO of Staked.

Ogilvie also suggests that the demand for participation will increase further when, after the merger, Ethereum introduces the ability to withdraw ETH.

Another individual estimating that the move to Ethereum 2.0 (or the “consensus layer“) will boost betting is Rick Delaney, senior analyst at OKX Outlook, who suggests that the successful completion of the move will attract more risk-averse ETH holders. But Delaney suggests that given the wait for Ethereum 2.0, the sector will see growth in participation emerge elsewhere.

“Meanwhile, the dominant smart contract platform’s exorbitant transaction fees and persistent environmental concerns generally encourage the creation of new proof-of-stake layers 1 and 2. Combined, these factors make growth in the percentage of assets wagered likely this year,” he said. cryptonews.com.

Stake could also be driven by underlying growth in the crypto ecosystem, with new platforms likely to launch as proof-of-stake (rather than work test) protocols.

“Yes, [staking is] certainly growing; we are in a growth phase of adoption for Web3 and crypto, and staking is essential to secure PoS blockchains with the benefit of stable returns,” said Bob Ellison, head of market for the blockchain infrastructure provider. Product.

How staking could change in 2022

Looking at specific trends, 2022 could bring an influx of Layer 2 platforms launching their own staking services.

“The most interesting thing for me is the likely appearance of a form of participation in all layer two solutions as Polygon (MATIC), Referee, Optimism, et al. This is still changing but I hope it will be an interesting category to watch,” said Tim Ogilvie.

As a recent example, the Sandbox (SAND) launched participation in Polygon on February 14.

According to Rick Delaney, another big trend is likely to be the arrival of institutional players, particularly once Ethereum 2.0 is live. This is also something that the Ethereum-focused blockchain company ConsenSys has predicted, with a December post outlining how it hopes to attract large stakeholders.

“Elsewhere, innovative betting opportunities in the emerging GameFi and NFT sectors, such as those pioneered by DeFi Kingdomyes, TreasureDAO and EtherOrcs — will probably attract more interest,” Delaney added.

In fact, the bets exploded in axie infinity (AXIS) once NFT-based game introduced it in October, with 25% of AXS’ supply staked within weeks of launch. But it’s not just the GameFi gamble that will be important this year, according to Bob Ellison.

“Liquid participation with no tie-in periods will be more attractive, as Swimming pooland Figment’s River protocol,” he says.

As its name suggests, liquid staking allows users to stake assets while continuing to use them simultaneously with other platforms and services (eg DeFi). In recent weeks, crypto has witnessed the launching from benqi fluid staking protocol Avalanche (AVAX)while the pile of clay platform thrown out at Polygon in December.

Triple-digit returns and sustainability

Eagle-eyed observers may have noticed that some staking platforms and/or services occasionally offer ridiculous returns, sometimes implying up to three figures. Skeptics are likely to suspect that such apparent largesse is hardly sustainable, though commentators note that this depends on the models used by crypto PoS assets and staking platforms.

“Staking rewards come from scheduled inflation and fees paid on each block. Some of the planned inflation decreases over time, similar to Bitcoinreduced emissions program,” said Tim Ogilvie.

He notes that the decline in scheduled inflation is usually quite gradual, so we may still see double (or even triple) digit returns for some time.

“So I would expect returns to stay pretty consistent over the next 12 months or so. Staking rewards are the security budget a blockchain pays for, so keep the chain secure, so it’s money well spent in my mind,” he added.

Of course, some commercial services or DeFi platforms can base their returns, not on predetermined inflation, but on promises of earnings or earnings. In this case, users may have to tread carefully in the future.

“One must be careful here, Figment only supports protocol staking, essential for the operation of blockchain networks, not lending, liquidity, or some other arcane financial technique. If it sounds too good to be true, it probably is,” warned Bob Ellison, who urges users to learn how the bets and returns work before venturing any further.

More generally, Rick Delaney says he expects the rewards for staking to decrease with a higher number of participants. “Returns earned through the most popular opportunities may fall, but emerging staking protocols should generate comparatively high percentage returns until they are widely adopted,” he predicted.

With Ethereum 2.0 poised to bring staking to more and more people this year, such widespread adoption may come sooner rather than later. But for now, at least, it’s still in an expansion phase where big temptations and big rewards are the norm.
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