It has been a year since the Ethereum Merge, which transformed the Ethereum network into the largest proof-of-stake digital asset by market value. The transition to proof-of-stake not only reduced Ethereum’s energy intensity, but it also opened up staking opportunities for a larger number of holders. Staking rewards have become a significant factor for investors, with the total staking rewards for all cryptocurrencies reaching $5 billion on an annualized basis in Q2 2023.
Generating Competitive Rewards in a Risk-Off Market
Staking has become an appealing strategy for Ethereum and proof-of-stake token holders during risk-off market environments. By staking their assets, holders can earn rewards without the need to sell. Staking can help cushion the impact of a bear market, allowing holders to weather the storm until asset prices recover. The current annual percentage rate (APR) for staking Ethereum is 3.9%, and with the MEV Boost feature enabled, the returns can range from 4.2% to 5.6% over the past six months. These rewards are comparable to traditional yield-bearing financial instruments such as 10-year Treasury bonds or dividend stocks.
Ethereum Upgrade: Removing Barriers to Entry
The Shapella upgrade in April 2023 enabled Ethereum stakers to withdraw their holdings for the first time since staking began. This has given early stakers the ability to unlock their assets and withdraw the rewards they have earned over time. The removal of uncertainty surrounding withdrawals has contributed to the increased demand for staking, as seen in the net inflow of nearly 7.5 million ETH into staking since the Shapella upgrade. The percentage of the total supply of ETH that is staked has also increased to 22.4%, up from 14.5% before Shapella.
Entry and Exit Queues
Initially, there were long queues to enter staking positions, but as the situation has normalized, the entry queue now stands at just over eight days. Similarly, the exit queue has reduced significantly to under one hour. While the growing number of validators and nodes on the Ethereum network poses challenges in terms of increased latency and longer consensus times, developers are working on solutions to address these issues while maintaining decentralization.
The demand for staking ETH remains high, as indicated by the long entry queues. With upcoming upgrades to lower gas fees and improve speed and account abstraction, Ethereum’s appeal is expected to increase further. The number of unique Ethereum addresses and validators has grown substantially since the Merge, demonstrating the growing interest in the network and opening it up to more participants. Staking empowers Ethereum holders and will continue to play a pivotal role in the future of the network.