ethereum network Generate over $1 million every day Transaction revenue increased by 35% compared to a year ago. Participants can stake their assets to become validators and earn profits and profits. ETH's all-time high was $4,729, and it is currently close to $1,000 to go.
CoinFund's Christopher Perkins explains how Ether and staking are part of the emerging on-chain financial products.
Alex Rivkin Rho Labs' Ask an Expert features common questions about topics.
In this article, we will mention Ethereum, Ether, and ETH. To be clear, Ethereum refers to the blockchain network, and Ether and ETH refer to the cryptocurrencies.
With over $10 billion in inflows in less than two months, the Spot Bitcoin ETF is already considered the most successful product launch in ETF history, drawing widespread mainstream attention to this exciting crypto asset class. With a supply cap of his 21 million tokens, the story of Bitcoin as “digital gold” or store of value is easy to understand. Now investors are asking, “What happens next?”
Enter Ether, the second largest crypto asset. Market capitalization. Ethereum pioneered “smart contracts,” which now includes decentralized finance (DeFi), non-fungible tokens (NFTs), and other applications across the ecosystem. These applications have proliferated since the introduction of Ethereum. came up with Nearly a decade ago, demand grew for Ether (ETH), the native token needed to pay for the “gas” to record transactions on the blockchain. Like Bitcoin, Ethereum is also taking stabilization measures. money supplyAnd today, that token supply is slightly deflationary.
Assets with stable supply, increasing demand, and clear utility are considered worthy of investment exploration. Ethereum also offers attractive benefits to those who participate in its security as network validators through a process called “staking.”
Unlike Bitcoin, which relies on miners solving a mathematical formula known as “proof of work” to verify transactions, Ethereum isproof of wagerIn this approach, those who participate in securing the network by “staking” their tokens are rewarded by the protocol, and validators also receive rewards known as priority transaction fees as an additional incentive for users' transactions. Next block.
Today, almost One million The combination of validators on the Ethereum network, protocol rewards and preferred transaction fees backed by a stable currency supply provides attractive results. [real] yield for investors.
Bitcoin thus became known as “digital gold,” but because of this underlying staking yield, the story of Ether shifted to “Internet bonds.” To fully understand the investment case, it is important to understand its yield drivers: 1) protocol or consensus layer rewards, and 2) preferred trading fees or execution layer rewards.
Consensus awards are given to validators to secure the protocol. The size of the reward is correlated to the number of validators securing the network. These rewards are shared among validators, so the more validators you have, the lower the rewards will be. Ethereum has seen a significant increase in the number of validators since moving to proof of stake. As a result, consensus compensation decreased over that period.
Figure 3: Ethereum consensus layer rewards (Source: CoinDesk Indices)
Preferred transaction fees are the second component of Ethereum's native yield, and these rewards are generated through transaction processing and paid by users. The variability of these execution rewards is correlated to the level of activity and demand across the ecosystem. In particular, during the bankruptcy of FTX (November 2022) and Silicon Valley Bank (March 2023), and during the frenzy of memecoin trading activity (May 2023), users Transaction fees skyrocketed as they raced to confirm trades.
Figure 4: Ethereum transaction fees (Source: CoinDesk Indices)
Currently, Ethereum staking yields are supporting new “Internet bonds.” Similar to traditional rates, real yields on staked Ether can enhance competitive returns, unlock structured products, and enable new classes of derivatives. As investors' attention shifts to Ether, “total return” products that integrate Ether's inherent yield are sure to gain traction.
Q. Despite the approval of the Spot Bitcoin ETF and the impending halving, Ether is still outperforming Bitcoin year-to-date. What is the reason?
answer: In recent days, Bitcoin has stolen the spotlight from Ethereum, with its price soaring to an all-time high on Tuesday. However, ETH remains a well-performing asset, with a year-to-date return of 68.13%.
While Bitcoin boasts perhaps the strongest and most engaged community in the cryptocurrency space, Ethereum is the infrastructure layer for the majority of blockchain applications. As the network becomes more popular, Ethereum offers ETH holders the opportunity to participate in network fees through native staking. Ether's widespread adoption, deflationary nature, and native yield are a large part of the asset's appeal.
As a function of network usage, ETH's native yield tends to fluctuate widely depending on cryptocurrency market conditions. Further increasing the attractiveness of his ETH as an asset, especially for institutional investors and non-crypto native users, may require a product that allows fixed-yield he ETH staking.
Q. What does the future hold for ETH staking?
answer: In traditional finance, yield is the top priority. Institutional interest in ETH is growing, and staking-focused DeFi protocols like Lido and EigenLayer (the latter flipped Aave this week to become the second-largest DeFi protocol after Lido) are gaining popularity. The importance of native ETH yield will continue to increase. continues to grow.
More recently, asset managers such as ETC Group and CoinShares have started offering total return ETPs that add a staking yield kicker on top of the performance of the ETH token. In the US, Franklin Templeton and Grayscale are also considering incorporating staking into their proposed ETFs.
In the non-ETH space, Grayscale recently announced an actively managed dynamic income staking fund, further demonstrating the importance of income-focused products to the ecosystem. As investors become more familiar with this asset class, it is safe to say that staking yield will become a key stake in serious ETH-based products and services.
Securities and Exchange Commission again delayed the decision With BlackRock and Fidelity's Spot ETH applications.
