Original author: Bitui Asher Zhang
secondary title
After the conversion of Ethereum to PoS, the pledge track ushers in opportunities
After the merger of Ethereum, the pledge income of ETH has been supplemented by transaction fees and MEV income in the short term, and the rate of return of pledged ETH has increased; Yields tend to decline overall. As of December 6, according to Oklink data, the annualized rate of return on Ethereum staking is 4.06%.
Although the annualized rate of return of Ethereum tends to decline as a whole, the value preservation of Ethereum is strong, and the pledged amount of Ethereum has been rising. According to Oklink data, as of December 6, the pledge rate of Ethereum was 12.99%.
However, compared with the Token pledge ratio of many other large public chains, the pledge rate of Ethereum is relatively low. The pledge ratio of many public chains is mostly distributed around 60%-80%. There is still a lot of room for improvement in the pledge ratio of Ethereum . However, it should be noted that the high pledge rate of many large public chains is mainly attracted by the high annualized rate of return. This result will lead to a shrinking of the value of the pledged Token; and Ethereum has actually entered into deflation after the merger stage, with the continued prosperity and development of the Ethereum ecology, the economic incentives of Ethereum staking are highly sustainable and attractive, and it continues to attract more and more institutions to participate.
Sandy Kaul, senior vice president of Franklin Templeton (Franklin Templeton), the world's largest listed fund management company with an asset management scale of approximately US$1.5 trillion, said in an interview with Real Vision that Ethereum pledges provide huge opportunities for institutions focusing on the encryption market. I've seen some very strong products that I think will perfectly meet the needs of institutional investors." On September 29, Deutsche Telekom launched the latest agency for Ethereum equity services. Its T-Systems MMS subsidiary will host verification nodes for the blockchain and provide custody solutions for liquid pledge solution StakeWise. Earlier, on September 8, the Swiss digital asset bank SEBA Bank announced the launch of ETH pledge service, which provides more bank customers and investors interested in cryptocurrencies with the opportunity to enter the cryptocurrency market. In the future, I believe that more institutions will participate, because the huge potential of Ethereum in the future is still very attractive compared to financial products in the traditional market.
A glance at the ecosystem and current status of Ethereum staking
Around the Ethereum protocol, the pledge ecology can be subdivided into: execution and consensus clients, middleware, DVT network, pledge options, infrastructure services, pledge pools, liquid pledge derivatives, custodians, wallets, data providers and tools wait. in particular:
The Ethereum Protocol - is the set of rules that run on Ethereum nodes, which embody the core infrastructure of thousands of decentralized applications.
Client software - To participate in the Ethereum network, users need to install software called clients on their computers to turn them into Ethereum nodes.
MEV - refers to the maximum value that can be extracted from block production in excess of standard block rewards and gas fees by changing or excluding the order of transactions in a block, a concept originally applied by proof-of-work (PoW) miners .
Flashbots - extends the Go-ethereum client with a service that allows seekers to submit MEV transactions to miners without revealing transactions to the public mempool, which helps reduce high gas prices.
Distributed verification technology - refers to Ethereum validators running on multiple untrusted nodes to improve fault tolerance and security.
Personal Staking - A user needs to deposit at least 32 ETH to activate the validator software to become a validator. This user will be responsible for adding new blocks to the blockchain, processing transactions and storing data, while securing the entire network, and being rewarded with new ETH .
Staking Providers - Considered as the backend operators who run all the computer and physical infrastructure that makes the PoS blockchain function.
Staking Pools - Issue liquidity tokens, which represent pledged ETH, and allow users to trade or use the tokens in DeFi applications, as well as in return for new trading/investment opportunities.
Custodian - is the institution that actually owns the user's financial assets, it is usually a brokerage firm, commercial bank or other type of institution that holds the user's funds and investments for convenience and security.
Data Vendors – are organizations or businesses that provide data for use by third parties. Some data vendors provide access to datasets for free, others sell data for a fee, and some data vendors provide a mix of free and fee-based data services.
Tools - The Ethereum community has developed tools to make the staking process more secure, efficient, and scalable.
Wallets and browsers - are the connection points between users, protocols and the Ethereum chain, wallets have different functions to meet the needs of users, these listed provide Ethereum staking as a key function of the wallet.
Escrow pledge - users pledge cryptocurrency through a centralized entity, the trading platform is the custodian of the user's assets, and the user entrusts the management of the private key to the trading platform and is bound by its terms.
Interpretation of Leading Projects on the Ethereum Pledge Track
Although the pledge ecology of Ethereum has initially formed a system, as mentioned above, the pledged assets of Ethereum only account for about 13% of the circulation. It is foreseeable that a large amount of growth has not yet come, which also means that the pledge of Ethereum There is still a lot of room for growth on the track. In such a huge Chaoyang track, the most worthy of attention is undoubtedly the leading pledge project. On the staking track, currently Lido, Binance, Kraken, and Coinbase are basically monopolizing Ethereum PoS staking. Among them, the decentralized staking project Lido deserves special attention.
Lido is a financial platform that provides ETH pledged derivatives services and charges management fees. Allows users to obtain liquidity Token rewards without locking assets or maintaining their own pledge infrastructure, depositing ETH into the Lido smart contract to receive transferable stETH (liquidity Token for pledged ETH on the Lido platform). In return, 10% of all ETH staking proceeds (which can be changed by LDO voting) go to Lido DAO, which is controlled by LDO Token holders.
Its advantages are:
1. The amount of Lido pledged accounted for 30.36% of the total amount of Ethereum pledged, ranking first on Ethereum. Lido has an absolute advantage in the market.
2. Lido is easy to operate and has no threshold to choose, and its in-depth use is comparable to stETH.
Its disadvantages are:
1. LidoDao controls Lido. According to Nansen’s statistics, the top 9 addresses control 46% of the voting rights. In theory, they can have an impact on verifiers, and then affect whether the nodes comply with the review. If the Lido market continues to expand, it will face two major problems of decentralization and resistance to censorship.
2. The volume of Lido is too large, and the increase in Ethereum pledged by Lido throughout 2022 is quite insignificant;
3. Problems such as centralized governance and excessive market share have emerged.
The development of the Ethereum pledge track in the future
The current Ethereum can only deposit ETH but cannot withdraw ETH, and the total value of the pledge is close to 23.5 billion US dollars, which are all "trapped" on the Ethereum network. If the unstaking function is not opened as soon as possible, the attractiveness of staking ETH will be greatly reduced, and the number of groups entering the Ethereum ecosystem will also be affected in the future, which will undoubtedly have a huge impact on the future development of Ethereum and network security. Therefore, after the London upgrade, the most important upgrade is the Shanghai upgrade, and the core proposal to solve the above problems is EIP-4895.
Specifically, EIP-4895 can be said to be the core of the upgrade of Ethereum Shanghai. As a result, the pledged ETH withdrawal operation is realized, and the implementation method is to introduce a system-level withdrawal instruction. There are many ways to execute the withdrawal operation. The characteristics of this withdrawal operation are as follows: 1. It is initiated by the system itself, rather than initiated by a user, which is more concise and easy to review; The control of the withdrawal limit of the consensus layer does not need to use gas for anti-Dos protection; 3. Directly update the balance of the execution layer, without EVM execution process, and adopt the simplest implementation strategy.
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