Sep 27, 2023

As part of CoinDesk's Staking Week, presented by Foundry, CoinDesk Ethereum Protocol Reporter Margaux Nijkerk takes a closer look at the state of staking, roughly a year after Ethereum's historic Merge.

Video transcript

Coin desk is taking a closer look at the state of staking roughly a year after Ethereum switched from proof of work to proof of stake. Joining us now to discuss some of the key takeaways is coin desks, Ethereum protocol reporter Margot Niki, welcome to the show. Margot. Hi, thanks for having me. Thanks for being here. All right, let's dive right into this. You wrote an article covering what Ethereum switch fixed, but also some new issues unpack those for us. Yeah. So it's been roughly over a year. Um There's been a lot of takeaways from the past year from energy consumption to centralization to like the emergence of liquid staking tokens. So uh yeah, the proof, I mean, the main takeaway from proof of stake. First of all, when it comes to energy consumption is that it's down by 99.9%. Um which was like one of the goals of uh that switch. So that was a positive. But there, you know, there's always pros and cons when it comes to um these kind of upgrades. And I think some of the um the negative effects of proof of safe that was worn beforehand have sort of persisted. But yeah, overall, it's been interesting to see how that's all played out over the past year. What's the biggest, I guess negative effect been? That's hard to sort of say. It depends on probably who you ask. I would probably say what's most concerning for from the developer perspective is that there are these efforts or not efforts, but there are signals that there's greater centralization. A lot of proof of work proponents had sort of argued that proof of stake would lead to um like staking pools gaining too much power. We can see that now with Lido being one of the largest um like providers in terms of running validators, that's nearing like a 33% threshold, which is about a third of all uh the validators that are running the, the proof of state Blockchain. And so um developers are sort of working on ways to um eliminate their control over running this Blockchain and, and uh talk about a little bit about how people are making money now. It it seems to that the economics have definitely changed. Um So uh what does it mean now when somebody stakes it and, and like, how have the economics changed over the past 12 months? Yeah. So um so there's I think two parts to that question. The first part is that um staking is the main way to um earn some kind of reward. And so basically, just to back it up a little bit. When you stake your eth on Ethereum, you lock your tokens into a contract and you can't use those tokens anymore to participate in any kind of D I activities like borrow le et cetera. Um And so one of the newer, um, like elements I've come out of this are these liquid staking providers where you can deposit your e with them and they will issue you a token that represents your eth and you can use that token to buy, sell like any other crypto earn interest. Um And so these, this has grown tremendously over the past year. Um And right now, the the liquid staking market is worth about like $20 billion. I believe at the time of the merge when you like, I think it was about 11% of each supply was staked and between then and now it's grown to 25%. But more importantly, I think right after the merge, um what happened was that if you did stake your e if you weren't able to cash out your rewards, and that's why these liquid staking providers were sort of an alternative where you could participate in staking, earn some kind of interest. Um And then especially because the rewards if you did, if you were a home staker weren't available to you until the Chappelle upgrade. So that's been interesting to see how that kind of grows. Li is also a really important player. In that aspect, I think from the staking market, they're about, they have about 70% of that share. Um, so that's really interesting. Yeah, they're huge, like a huge market participant. And so that's really interesting to see where that's going. It's only been a year. As I, as I said, there's only 25% of the token supply that's been staked. So there's a lot more room for staking. Um, and we'll just have to see how that plays out and talk to us a little bit about the regulatory reaction to the switch to proof of stake. Yeah. So um there has been some clampdown on uh on staking as we saw with, with the cracking case in the sec. I think that's probably raised some concerns for developers what that means in terms of staking, especially because how do you balance a decentralized system that's supposed to be run across the world? But also when there entities that are based in the United States and have to follow uh us rules. So I think that's probably a better question for um decentralized exchanges and developers. Like how do you go about this as, as well as if you're a US citizen? Like what, what does that mean uh to state? Um and to follow uh the rules of, you know, the country and, and, and of course, the, the, the actual supply of e has been falling, that's not necessarily a given though in any given moment. Um So what has that meant for the Krypton economics? Because we haven't seen a surge in the price of certainly. Yeah. No, that's a good point. And I wanted to get that out earlier. So thanks for reminding me. But um but uh yeah, so um right. So the, the the merge did bring in this mechanism that um has made eth deflationary, which means that the supply of E is decreasing rather than increase, increasing. And the code for that was sort of set up already prior to the merge, there were just some last minute, not last minute, but some, some code, final code changes in the merge that activated this. Um And basically every time that you transact with a certain amount of it gets burned. And as you said, that investors were hoping with this, that the price of E like they that would probably become more uh valuable. So the price hopefully will go up. But right now, as you can see on the screen, um the supply of E is down 0.24% sort of depends day to day. Um But that's since the merge. Um And the price of beef hasn't changed that much. So, um you know, we'll have to wait and see what this means. There might be some market conditions at play here or probably there are some market conditions at play here. But um and other factors, but we'll just, that's all these, these are all stories that I have like yet to be told. It's only been a year and so it's like a great time to reflect on where all this has gone. But, um, you know, a lot still has to evolve from this Margot. It's wonderful seeing you. Thanks for joining us this morning. Great. Thanks for having me. That was Coindesk Ether and Protocol Reporter Margot nine.

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