Ethereum network It generates more than a million dollars a day In transaction revenue, up 35% from last year. Participants can share their assets to be validators and earn revenue or return. ETH's all-time high was $4,729 and is currently near $1,000.
CoinFund's Christopher Perkins explains how ether and staking are part of an emerging on-chain financial product.
Alex Rifkin From Rho Labs covers frequently asked questions on the topic in Ask an Expert.
In this article, we refer to Ethereum, ether and ETH – for clarity, Ethereum refers to the blockchain network while ether and ETH refer to cryptocurrency.
With inflows of more than $10 billion in less than two months, the Bitcoin Spot ETF is already the most successful product in the history of ETFs, bringing widespread mainstream attention to the exciting cryptocurrency asset class. With a maximum supply of 21 million tokens, it is easy to understand Bitcoin being described as “digital gold” or a store of value. Now investors are asking: “What's next?”
Enter Ether, the second largest crypto asset Market value. Ethereum pioneered “smart contracts” that now include decentralized finance (DeFi), non-fungible tokens (NFTs) and other applications across the ecosystem. These applications have skyrocketed since the advent of Ethereum Imagine, pregnant Nearly 10 years ago, this created increased demand for its native token, ether (ETH), needed to pay for the “gas” to record transactions on its blockchain. Like Bitcoin, Ethereum has taken steps to stabilize its price Cash offerToday, its token supply is slightly deflationary:
Any asset with stable supply, growing demand, and clear interest can be worthy of investment consideration. Ethereum also offers a compelling return to those who stake its security as network validators through a process called “staking.”
Unlike Bitcoin, which relies on miners to solve mathematical equations known as “proof of work” to validate transactions, Ethereum has moved to “Proof of stake“Validation mechanism in 2022. Under this approach, those who participate in securing the network are rewarded by “staking” their tokens through the protocol, and validators also receive rewards known as priority transaction fees, as an incentive. Additional to include the user's transaction in the next block.
Today there are approx 1 million dollars Validators on the Ethereum network, combining protocol rewards and prioritized transaction fees, against the backdrop of a stable coin supply, makes for a compelling process. [real] Return to investors.
So, while Bitcoin has become known as “digital gold,” the ether narrative has shifted to “cyberbonds” because of this fundamental return. To fully understand the investment case, it is important to understand the factors driving its return: 1) protocol or consensus layer rewards and 2) priority transaction fees or implementation layer rewards.
Consensus awards are awarded to validators through their locking protocol. The size of the rewards is related to the number of validators who secure the network. Since these rewards are shared among validators, the more validators there are, the lower the rewards. Ethereum has seen a significant increase in the number of validators since it moved to Proof of Stake. As a result, consensus rewards decreased during that time period.
Figure 3: Ethereum consensus layer rewards (Source: CoinDesk Indicators)
Priority transaction fees are the second component of Ethereum's native revenue and these rewards are generated by processing transactions, which are paid by users. The volatility of these execution rewards is related to the level of activity and demand across the ecosystem. Notably, transaction fees rose during the FTX (November 2022) and Silicon Valley Bank (March 2023) bankruptcies and during a flurry of memecoin trading activity (May 2023), as users raced to confirm their transactions on the blockchain.
Figure 4: Ethereum transaction fees (Source: CoinDesk Indicators)
Today, Ethereum's staking yield is fueling new “cyberbonds.” Like traditional rates, Ether's true yield can enhance competitive returns, unlock structured products, and enable new classes of derivatives. As investor interest turns to ethereum, “total return” products that incorporate their principal return will certainly take center stage.
s. Despite the immediate Bitcoin ETF approvals and the impending halving, ether has still outperformed Bitcoin since the beginning of the year. What could be the reasons for this?
a: In recent days, Bitcoin has stolen the spotlight from the ether, with its price jumping to a new all-time high on Tuesday. However, ETH remains the best-performing asset, with an exceptional YTD return of 68.13%.
While Bitcoin is perhaps the strongest and most specialized community in the cryptocurrency space, Ethereum has become the infrastructure layer for the vast majority of blockchain applications. As network adoption grows, Ethereum offers ETH holders the opportunity to participate in network fees via native staking. Ether's widespread adoption, deflationary nature and local yields are a large part of the asset's appeal.
As a function of network usage, the original yield of ETH tends to fluctuate significantly depending on the state of the cryptocurrency market. To enhance the appeal of ETH as an asset, especially with institutional and non-crypto audiences, products that enable fixed-return ETH storage may be needed.
Q: What does the future of ETH signing look like?
a: In traditional finance, yield is king. With growing institutional interest towards ETH, and the growing popularity of staking-focused DeFi protocols like Lido and EigenLayer (the latter flipped on Aave this week to become the second-largest DeFi protocol after Lido), ETH's native yield will become increasingly important. It also continues to grow.
Recently, asset managers such as ETC Group and CoinShares have begun offering total return exchange-traded products that add a strong return to the performance of the ETH token. In the US, Franklin Templeton and Grayscale are also looking to incorporate staking into their proposed ETFs.
In the non-ETH space, Grayscale recently announced an actively managed Dynamic Income Stake Fund, further proving the importance of income-focused products to the ecosystem. It is safe to say that as investors become more familiar with the asset class, staking returns will become table stakes for serious ETH-based products and services.
The SEC has done it again Her decision was delayed On BlackRock and Fidelity's ETH spot apps.
