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Nearly 70% of institutional investors in ethereum (eth) participate in eth staking, and 60.6% of them use third-party staking platforms.
ethereum Staking Landscape at a Glance
According to a ethereum-staking-a-survey-of-industry-leaders#introduction” target=”_blank” rel=”nofollow”>report According to Blockworks Research, 69.2% of institutional investors who own ethereum participate in staking the platform's native eth token. Of them, 78.8% are investment services and asset management companies.
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Notably, just over one in five institutional investors (or 22.6%) of respondents said that eth or an eth-based liquid staking token (LST) makes up more than 60% of their total portfolio allocation. .
The report notes a seismic transformation in ethereum's staking landscape since the network moved from a proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism during the Merge upgrade.
Currently, there are about 1.1 million on-chain validators staking 34.8 million eth on the network. After the merger, ethereum network participants were allowed to withdraw their eth only after the Shapella upgrade in April 2023.
After the initial phase of eth withdrawals, the network has seen steady inflows, indicating strong demand for eth staking. Currently, 28.9% of the total eth supply is at stake, making it the network with the highest dollar value of assets at stake, valued at over $115 billion.
It is worth noting that the annualized return on staking eth is around 3%. As more eth is staked, the return decreases proportionally. However, network validators can also earn additional eth through priority transaction fees during periods of high network activity.
Third Party Bets Overshadow Individual Bets
Anyone can participate in eth staking, either as an individual staker or by delegating their eth to a third-party staking platform. While solo staking gives the staker full control over their eth, it comes with a high barrier to entry of staking at least 32 eth, worth over $83,000 at the current market price of $2,616.
In contrast, holders can stake as little as 0.1 eth through third parties, but must give up some degree of control over their assets. Recently, ethereum co-founder Vitalik Buterin stressed the need to reduce entry requirements for individual eth participants to ensure further decentralization of the network.
Currently, around 18.7% of bettors are individual bettors. However, the trend shows that individual bets are losing popularity due to the high entry threshold and inefficiency of locked capital. The report explains:
Once locked, eth can no longer be used for other financial activities across the DeFi ecosystem. This means that liquidity can no longer be provided to a variety of DeFi primitives, nor can eth itself be collateralized for loans against it. This presents an opportunity cost for individual stakers, who must also take into account the network's dynamic reward rates of staked eth to ensure they are maximizing their risk-adjusted return potential.
As a result, third-party staking solutions are becoming more popular among eth bettors. However, these types of platforms, dominated by centralized exchanges and liquid staking protocols, raise concerns about network centralization.
About 48.6% of eth participants leveraging third-party staking platforms use a single integrated platform, such as Coinbase, Binance, Kiln, and others.
The report highlights key factors driving institutional investors to use third-party platforms, including platform reputation, supported networks, pricing, ease of onboarding, competitive costs, and platform experience.
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Although the ethereum staking ecosystem is evolving, this growth has not yet been reflected in the price of eth. eth has increased significantly poor performance against btc for an extended period, only recently winning traction following the decision of the United States Federal Reserve (Fed) to cut interest rates.
However, some crypto research companies remain optimistic about the possible comeback of eth against btc later this year. At press time, eth is trading at $2,616, up 0.8% in the last 24 hours.
Featured image from Unsplash, charts from Blockworks Research and Tradingview.com
