How Ethereum’s ‘Merge’ will change the dynamics of liquid staking

Ethereum

The word staking has been buzzing around the crypto space for quite some time now. Now, like most things associated with the crypto space, even this can be a complicated or straightforward notion, depending on how many layers of depth one decides to go.

For most traders and investors, staking is a way of earning rewards for locking up certain cryptocurrencies. Even though that is the key takeaway, it is essential to slightly delve into the nuances of it.

Well, staking is usually done through staking pools. And, the ultimate reason staked cryptos earn rewards is because the underlying blockchain puts them to work. Essentially, the cryptos that allow staking use the PoS consensus mechanism.

Staking also has the benefit of contributing to the security and efficiency of various blockchains. More so, because staking makes the underlying chain even more resistant to attacks and strengthens its ability to process transactions.

The changing dynamics

Earlier this year, a host of leading institutions jumped on the bandwagon and presented their respective positions to the community. Investment banking giant JP Morgan, for example, stressed in its late June report that it believes in the power of staking.

The aforementioned report titled “A Primer on Staking – The Fast-Growing Opportunity for Cryptocurrency Intermediaries and Their Clients” highlighted that crypto staking makes the “crypto-ecosystem more attractive as an asset class.”

More so, the bank pointed out, as staking has the potential to act as a major source of income for retail and institutional investors.

The report further noted,

“We estimate that staking is currently a $9 billion business for the crypto economy, will grow to $20 billion following the Ethereum merge, and could get to $40 billion by 2025 should proof of stake grow to the dominant protocol.”

Ethereum’s “merger” would inevitably change the dynamics of the staking market. According to the latest data, there are nearly $ 10 billion in liquid assets [when compared to $9 billion when JP Morgan’s report was out]. Now, the same figure would have to be multiplied by at least four if it were to cross the threshold of $ 40 billion set by the bank by 2025.

Is it possible?

For now, there are a couple of players who evidently have an upper hand in the liquid staking market. As can be observed from the snapshot attached below, most of the protocols have a major chunk of value staked on Ethereum followed by Terra.

At over $ 6.75 billion and $ 2.41 billion, the Lido Finance and Anchor protocol seem to be standing out right now. Looking at the slow pace over the past couple of months, however, JP Morgan’s aforementioned goal seems to be far-fetched.

On the contrary, over the next few months, if the staking craze becomes even more intense, then things might shape up in the staking market’s favor. Thus, only time can tell if the aforementioned potential projects would be able to deliver going forward or not.

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