The price of the Ethereum (ETH) cryptocurrency crossed the $2,000 mark for the first time since August 2022 after a major blockchain update for the second-largest cryptocurrency took place, and fears of a massive outflow of funds from the network were not confirmed. Since the beginning of the year, the coin has grown by more than 60%, writes RBC Crypto.
Access to coins
On April 13, the update of the Ethereum blockchain, tentatively called Shanghai, as part of the Shapella update group, gave investors the opportunity to withdraw the coins they placed as collateral in a special Beacon Chain smart contract launched back in 2020. This gives them the status of a transaction validator on the network and allows them to receive rewards in the form of emission of new coins – this process is called staking.
Accumulated rewards have also become available for withdrawal to wallets. According to the analytical service Nansen, in the first 12 hours after the activation of the update, investors withdrew only 0.3% of the 18 million ETH placed in the staking contract.
Only 43.2 thousand ETH can be unlocked per day. About 170 thousand ETH will be sold at the market price in the near future, but even if the coins are withdrawn at the maximum allowed limit per day, this figure fits into the average ETH inflow to the exchanges and will not critically affect the price of the coin. It is important to understand that many validators have just started testing a new feature, withdrawing earned funds, and not a pledge of 32 ETH. Accordingly, they plan to confirm transactions further, the expert explains.
According to Coin Metrics, an analytics company, about 1.2 million ETH is expected to be withdrawn from staking in the next five days, which is equivalent to about $2.3 billion at current prices. About $36.7 billion in Ethereum remains on the Beacon Chain.
The price of ETH may fluctuate in the coming weeks as some investors rush to withdraw the coins and sell them. But those who were not ready to freeze their assets before, on the contrary, may decide to place coins in a smart contract, says Roman Nekrasov, co-founder of the ENCRY Foundation. Most likely, the upgrade of the network in the medium and long term will lead to an increase in the price of the coin, but before that, a period of increased volatility is possible, the expert predicts.
Staking as a service
Self-staking Ethereum involves setting up hardware and requiring a minimum deposit of 32 ETH. But even more private investors use staking services on crypto exchanges and decentralized platforms that provide the so-called liquid staking service.
In this case, exchanges or services act as a validator, pooling user funds into a single pool with a user-friendly interface and rewards for staking in proportion to their invested funds. The largest staking platform, Lido, manages roughly 31% of all staking ETH as a validator. The top five validators also include Binance, Coinbase, and Kraken.
The main advantage of staking services from exchanges is simplicity, explains Cherpichnikov. The user does not need to understand the intricacies, it is enough to “press a couple of buttons and be sure that staking works”. Interest payments will be made by the exchange, which also assumes rights and responsibilities. For any difficulties, you can write to the support service and get an answer in a short time. This is always suitable for beginners, so the popularity of staking through exchanges or platforms will not be greatly affected by the Ethereum upgrade.
The ability to unlock coins is unlikely to greatly affect the popularity of staking services, Nekrasov agrees. Their target audience is not so much those investors who were not ready to freeze their assets, but those who simply do not have 32 ETH to place in a smart contract. The demand for the service, if it sags, is insignificant, the expert believes. A similar opinion is shared by 0xprocessing co-founder Nikita Vassev. According to his observations, many cryptocurrency holders who hold it for a long time use staking and liquidity locking “to participate in maintaining the operation of the network” and additional income in the form of accrued interest.
Kraken leads in the number of requests to withdraw coins from staking. The US exchange accounts for more than 86% of the total amount of ETH that are “in the queue” for withdrawal. The site was forced to stop its staking service in the US and pay a $30 million fine when the Securities and Exchange Commission (SEC) found its staking service to be the equivalent of an illegal sale of securities. Due to such bans in the US, coins will be withdrawn precisely to decentralized platforms, which the SEC will not be able to technically prohibit from using, Cherpichnikov believes.
Decentralized liquid staking services allow you to invest in staking Ethereum coins and other blockchains based on the Proof-of-Stake (PoS) algorithm and receive derivative tokens of equal value in return, which are also traded on crypto exchanges and can be used for additional earning strategies. Examples of such platforms include Lido, Rocket Pool, Stakewise, and others. Many of them issue their own tokens that give the right to vote in decentralized autonomous organizations (DAO) or receive discounts on service fees.
According to Vassev, the investment attractiveness of the tokens of such platforms depends not only on the range of their services, but also on the whole of their work in marketing, positioning, turnover and market trends. Some platforms do not have a token, but this does not prevent them from attracting users. For example, stake.fish is popular due to the experience and reputation of the f2pool behind it, a well-known brand in the mining pool niche.
The tokens of the largest staking platforms have also benefited from the successful Ethereum upgrade. During the day, the tokens of the Lido (LDO), Rocket Pool (RPL) and Stakewise (SWISE) projects showed an increase of 6-7%.
Source: bitcoinlinux.com
