Institutional crypto custody firm Anchorage Digital is set to introduce ether (ETH) staking for institutions, the company announced Tuesday.
The San Francisco-based federally chartered cryptocurrency bank will offer ETH holders the opportunity to earn rewards for helping to secure and extend the Ethereum blockchain once the network moves to a proof-of-stake (PoS) mechanism later this year.
The announcement follows reports that “the Merge” – the oft-delayed upgrade that will shift the blockchain to PoS from a proof-of-work (PoW) consensus mechanism – could reach completion in coming months. The transition to PoS, which is intended to be faster and more energy efficient than PoW, is now expected to occur in August.
Staking is the process of helping validate new cryptocurrency transactions on a proof-of-stake blockchain. Participants set aside some of their ether, get the opportunity to validate transactions and in return receive a reward. Anchorage is offering to manage that process for institutions that wish to participate.
“Institutional staking is definitely a win for institutional investors because before investors were very uncomfortable with how to participate in staking,” Anchorage President Diogo Mónica told CoinDesk. “[Ethereum] is the biggest network to do proof-of-stake, and having it bank-supported legitimizes [staking] as a real alternative to proof of work.”
Anchorage Digital will provide stakers with dedicated validators for their positions in exchange for a fee charged on what they accrue.
Investors can reap two types of rewards through staking.
The first type is a block reward, which is earned by proposing and creating new blocks on the blockchain. Those rewards are added directly to the investor’s staking balance and cannot be withdrawn until Ethereum enables the functionality sometime after the Merge.
The second type of reward is a transaction priority fee, which is awarded to validators in exchange for processing transactions on the network. That will accrue directly to the holder's Ethereum Mainnet balance, which means the funds will become liquid immediately and can be used for additional staking.
Rewards for validators are expected to double to about 8% or 9% after the Merge as transaction priority fees currently paid to miners start to be distributed to validators, according to Ethereum researcher Justin Drake.
“One of our major holdings is about to go through a pretty interesting transition in which you're going to be highly incentivized through the generation of return yield staking games to actually have your assets staked,” Mónica said. “So there's a little bit of a mad rush to have a partner that can actually do staking.”
Crypto market decline
The recent decline in the crypto market has little effect on the bigger picture for ether, the second-largest cryptocurrency by market cap. Even after the ether price dipped to below $1,000 to a 52-week low, there are uses for the altcoin that aren’t tied to its price, Mónica said.
“There's use cases like stablecoin settlements and payments that are winning across fintechs, corporates and large companies like Visa that are totally independent from speculative crypto prices,” said Mónica. “Those types of use cases are accelerating through the bear market or, at a minimum, are not being affected, because they’re not price related.”
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