Interestingly, staking in the crypto world seems to be dusting off its knees and standing tall amidst an overall gloomy atmosphere pervading the entire blockchain sector, thanks to a sequence of episodes that marked 2022 as a challenging year. Even as we find ourselves navigating the choppy waters of a rather unpredictable global economy, a fact put succinctly by Federal Reserve Chair Jerome Powell at Jackson Hole, it seems proof-of-stake (PoS) revenue generation is inching close to its glorious peaks.
Bloomberg’s Sidhartha Shukla reports a whopping 292% surge in the total value locked (TVL) for liquid staking protocols, bolstering the figure to $20 billion over the last year or so. This only falls marginally short of the $21 billion that was locked in leading decentralized staking protocols Lido and Rocket Pool in April 2022 just before the unfortunate downtrend of the TerraUSD stablecoin.
It hardly surprises that Ethereum staking valuations are exhibiting signs of recovery during a time when decentralized finance (DeFi) is being met with lukewarm interest. The spotlight here is on the Sept 15 event, dutifully christened as “the Merge,” where Ethereum took its first successful steps into being a live staking platform. This shift in blockchain narrative is noteworthy as Ethereum defied the longstanding critique concerning crypto’s carbon footprints, a feat made possible by weeding out energy-hungry miners.
Worth remembering here that Ethereum staking has offered users a pleasant ride thus far, with users enjoying an annual rate of 3%-4%. This requires them to stake a modest 32 ether (ETH), consequently taking up the mantle of a validator. Even the prime objective of staking, protecting the decentralized system from potential threats, has been successful till date. More so, the introduction of liquid staking, a democratized approach that lets small-scale holders pledge ETH to entities or smart contracts that collect funds and distribute staking rewards proportionately, has proved to be so appealing that it’s now being paralleled with the “on-chain equivalent of government bonds.”
Having said that, staking on Ethereum appears to be a safer bet compared to pledging funds to DeFi lenders. Furthermore, given the drying up of liquidity sources and frequent DeFi hacks, staking serves as the ideal alternative for individuals seeking to make their money work for them. It is important, however, to be clear that staking is not devoid of risks. In spite of this, considering the stringent hardware and capital prerequisites to transform into an Ethereum validator, it’s unlikely that people will retrace their steps and start nodes conventionally.
Thus, staking is a trend that was gaining momentum even before Ethereum’s endorsement. Some crypto bigwigs such as Cardano and Solana launched their “experimental” staking systems ahead of Ethereum. What we’re observing now is the industry-wide acceptance and normalization of staking as an inherent function of cryptocurrencies. The idea of crypto’s reality detachment, random price fluctuations, and the lack of substantial value is a common bone of contention. Introducing staking brings a certain level of tangibility to the crypto-world, aligning it closer to the ‘real-world’ dividend-paying stocks, which could potentially dispel some of the criticisms leveled against cryptocurrencies.
Source: Coindesk
