The State of Staking in May 2021

The State of Staking in May 2021

Learn
June 7, 2021 by J.D. Smith
37
4.6 million ETH has been staked in the first six months since genesis of the Beacon Chain. Concerns over the short-term lack of withdrawals on staking have settled as new liquidity models emerged for individuals, and increasing numbers of institutions became ready to participate. The graph below shows the distribution of staking thus far. A sizable portion
Screen-Shot-2021-05-19-at-6.43.57-PM

4.6 million ETH has been staked in the first six months since genesis of the Beacon Chain. Concerns over the short-term lack of withdrawals on staking have settled as new liquidity models emerged for individuals, and increasing numbers of institutions became ready to participate.

The graph below shows the distribution of staking thus far. A sizable portion of the community has focused on the ~13% deposited by two big exchanges. However, it is worth noting that 55% of stakes do not offer obvious allocation. This group also includes stakes being managed by some of the other staking providers or, of course, individuals and small houses running their own staking activities.

Screen Shot 2021 05 19 at 6 43 57 PM

The Case for Diversified Clients

While production has largely been smooth, an incident from the dominant Prysm client last April exposed a defect that meant it no longer logged the state of the Eth1 deposit contract correctly. The impact of this defect was far more severe than it needed to be because of the lack of diversity in client adoption. 

Prysm currently constitutes 70% of the network. As a result of this incident, the community will hopefully start to focus more seriously on diversification especially since there are a number of excellent clients available, including Teku.

The Next Phase of Ethereum

The Eth2 and Ethereum 2.0 names will soon be retired by the community, leaving us with an execution layer (Eth1 mainnet) and a consensus layer (Eth2/Beacon Chain). These changes reflect the evolution in the roadmap for upgrading Ethereum into a scalable and sustainable network since the genesis of the Beacon Chain.

Eth Roadmap

The Merge will bring execution onto the proof of stake Beacon Chain. The current expectation is that withdrawals from validator accounts will be enabled very soon after the Merge is delivered. Only after this will the sharding and various other more technical changes be delivered.

The community is currently running a Rayonism hackathon to test the viability of the Merge. So far, this has been relatively smooth. A realistic estimation for a timeframe for delivery of The Merge is Q1 2022.

Changing Rewards

Once the Beacon Chain becomes ‘executable’, validators selected for block proposals will be rewarded with the gas fees associated with the transactions being processed. Whilst they won’t reach current heights, there will be an impact on the overall percentage rewards being earned by validators on the network.

Whilst this will continue to reduce over time as more validators come online, it is estimated that rewards could rise to highs of 25% in the first instance. Of course, this depends on two things: 1) how well the validators are being run and 2) increasing demand for layer 2 transactions as the ecosystem moves toward cheaper and faster execution.

Institutional Staking Services

Codefi Staking allows exchanges, custodians, banks, and crypto funds to capitalize on the revenue opportunities of Ethereum without the technical and operational complexities of running an independent validator.