To Stake or Not to Stake - The Daily Gwei #33
With so much yield to be had, would you still stake your ETH?
An open question over the last few months in the Ethereum community has been centered around staking participation in eth2 - especially in phase 0. Basically, the community is debating how much ETH we’ll see staking during phase 0 given that it is currently a 1 way bridge and there is no ETA on when that ETH will be unlocked again.
On top of this open question, there’s also another thing on people’s minds lately - why would people stake their ETH when there is another highly lucrative game in town called yield farming.
I’m of the opinion that ETH staking and DeFi/yield farming aren’t in direct competition with each-other because different people will always be attracted to different opportunities. For example, something like yield farming can be very complex, very risky, short-lived, and requires constant care (and expensive gas costs) to earn the amazing returns that everyone talks about. This is simply not something most people will be doing.
Whereas with ETH staking, while the returns may be lower overall, its less risky, less complex and will last as long as the eth2 network lives (aka probably forever). In saying that, the return rate will vary based on how much ETH is staked. If 10mil ETH is staked, then eth2 stakers can expect to earn a 5.72% return for the year - much lower than what we’re seeing play out in the DeFi/yield farming space right now.
We won’t know how much ETH will be staked on the network at any given time until probably phase 1.5 (when eth1 and eth2 merge) because staking in phase 0 comes with a lockup of ETH for an undefined period of time. This will, of course, make many people hesitant to get involved with staking since they can’t exit at their leisure. Though in saying this, the Beacon Chain in Phase 0 only needs about 500,000 ETH staked to “activate” and start producing & validating blocks. I’m very confident that amount will be reached and the Beacon Chain will launch just fine but the bigger unknown is basically projecting how much ETH will be staked say, 6 months into phase 0. It could very well be much less than anticipated due to both the long lockup and the opportunities being offered elsewhere like yield farming.
It’s also worth noting that individuals aren’t the only ones that will be staking in eth2 - many institutions such as exchanges, staking companies and well known Ethereum entities like ConsenSys and the Ethereum Foundation will be some of the first to stake or offering staking services once phase 0 goes live. This means that the first group of stakers will likely be highly aligned Ethereum community members and institutions - I think this is a positive outcome.
Taking a holistically look at all of this, it’s really healthy that ETH can be used for a variety of different things on the Ethereum network and is not just locked down to being a staking asset or only being used to pay for gas - after all, ETH is a triple point asset.
Have a great day everyone,
All information presented above is for educational purposes only and should not be taken as investment advice.