A recent report from Binance sheds light on the current state of Ethereum staking and explores the potential impacts of the upcoming Shanghai upgrade.
According to the report, the launch of the Beacon Chain in late 2020 has resulted in over 16.5 million ETH being staked, which is currently valued at over US$25 billion as of February 23rd.
Approximately 520,000 validators facilitate the staking process. The dominant player in the market is Lido, a liquid staking provider, which has staked nearly 5 billion ETH and controls 29.2% of the market.
The report also reported that around 57% of ETH stakers have been able to access liquidity for both their principal and rewards for many months already, so they have no real reason to sell off after the Shanghai upgrade.
Most ETH stakers have no financial motivation to sell their stake due to being underwater. This group of stakers is less likely to have liquidity due to the less well-known nature of liquid staking at the time.
One of the most significant effects of The Merge was in relation to daily ETH issuance. With the transition from PoW to PoS, there was no longer any need to pay expensive mining rewards to incentivize miners to provide network security.
In combination with EIP-1559, which implemented a fee burn mechanism into Ethereum’s monetary policy, ETH supply growth has been reduced from over 3.5% per year to -0.03%.
In fact, ETH has been deflationary since January of this year. This deflationary nature, in addition to a few other properties of ETH as an asset, has led to the meme of “ETH = ultra-sound money.”
Ethereum’s DeFi Market Dominance Declines
In terms of risks, the macro environment remains shaky, with GDP challenges and higher inflation continuing to persist. Since November 2020, Ethereum’s DeFi market dominance has been down from ~96% to ~60%. During this same period, Binance Smart Chain has risen from 0.1% to 10.2%, while Tron has risen from 2.1% to 10.4%.
Ethereum’s position within the DeFi space is definitely something worth monitoring closely. However, the Shanghai upgrade is an important step in Ethereum’s transition to PoS, with the implementation of EIP-4895 allowing validators to withdraw their ETH and any accrued staking rewards.
The Zhejiang Testnet was the first testnet launch of the Shanghai Upgrade on a public Ethereum testnet and was successful. The Sepolia Testnet is the next step, with a blog post announcing this upgrade expected to be released on the Ethereum website around February 20th. Moreover, the Goerli Testnet will be the final test launch before a Mainnet launch in early April.