ethereum staking attractive for institutional investors

Ethereum staking could soon experience a boom once the project successfully transitions to a proof-of-stake (PoS) protocol, a report from blockchain research firm Chainalysis indicates.

In a post shared by the New York-based crypto analytics company yesterday, researchers shared further details about the scope, reach, and potential consequences of the event called “The Merge”.

According to Chainalysis, interest in Ethereum staking has already been surging ahead of the network’s shift to PoS as reflected by the more than $30 billion currently being locked into the Beacon Chain – the PoS-powered blockchain that will soon be merged with the Ethereum mainnet.

Researchers emphasize that investors have opted to lock their funds despite the notable disadvantages of doing so at this point including their inability to withdraw them. It is important to note that even once The Merge is completed, the staked amount will remain locked until the Shanghai upgrade is introduced.

This upgrade is expected to be implemented between 6 to 12 months after Ethereum completes its transition to proof-of-stake.

Handsome Rewards Could Attract Significant Institutional Interest

There are many reasons why investors are attracted to Ethereum 2.0 hard staking including expectations that rewards could increase significantly once the two networks are merged as transaction fees will be distributed among validators.

In Ethereum’s PoS-powered blockchain, validators are required to stake 32 ETH to participate. If they do not have that many resources at their disposal, they can tap into a staking pool and share the rewards with those who have staked their assets.

Estimates shared by Chainalysis point to staking rewards ranging from 10% to 15% per year for ETH staking. According to the firm’s analysts, these elevated yields could attract significant institutional interest as fixed-income instruments carrying a similar risk are offering dramatically lower returns at the moment.

Data compiled by the firm indicates that the number of stakers with over $1 million in assets has been steadily increasing from zero to 1,000 ahead of the widely-awaited event.

“It’ll be interesting to see if the number of institutional-sized stakers increases at a faster rate following The Merge, as this could suggest that institutional investors do indeed see Ethereum staking as a good yield-generating strategy”, analysts commented.

For miners, Ethereum’s shift to PoS is a huge blow as their hashrate will no longer be useful to keep the network safe. However, Chainalysis emphasizes that most of these miners could still migrate to layer-two protocols that require their services such as Livepeer and Render Network.

“There are several services built on the Ethereum blockchain that tap into the power of distributed GPUs to accomplish specific computing tasks in a decentralized manner, with GPU owners receiving Ether or ERC-20 token rewards in return”.

Why is Ethereum Transitioning to Proof of Stake?

Ethereum’s decision to transition to proof-of-stake is primarily due to environmental concerns as the network’s original consensus mechanism demands significant amounts of electricity to function.

In a proof-of-work environment, validators compete with each other to solve complex mathematical puzzles the fastest so they can earn rewards. This is considered by many as an inefficient system as a lot of resources are wasted by the nodes that constantly attempt but fail at solving the puzzles.

To deal with this situation, PoS is designed to randomly choose a validator to confirm the transactions that need to be recorded within the blockchain one at a time. Once the transaction is incorporated into the chain, the validator is rewarded with a certain amount of ETH that the entity has to share if it relied on the assets of a staking pool.

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