Onwards after the successful Merge: Ethereum is now secured by Proof-of-Stake
The long awaited Merge happened at exactly Sep-15-2022 06:42:59 AM UTC, when block 15537394 became the first that combined the Ethereum PoS Consensus Layer with the user transactions of the Execution Layer. Everything went very smoothly, with 0 downtime for both the network and Blockdaemon customers, and only a slight drop in participation rate. It consistently stayed >95% and quickly regained the normal ~99%. In the first 2 weeks after The Merge, we can already see a visible uptick in new validators joining (See above ~+2%). This increase is most likely the result of both renewed confidence in the Ethereum roadmap and the increase in staking rewards. The good news is that the activation queue has enough capacity that currently there is no delay for validator activation.
How do Eth staking rewards work after The Merge?
While the protocol after The Merge became almost deflationary despite historical low gas prices, validator rewards are estimated to be almost double after The Merge, from ~4% to ~7-8% with MEV enabled. PoS Protocol Rewards continue to accrue unchanged on the validator, until withdrawals are enabled in 2023. The two new rewards, Transaction Fee Rewards (Tx) and MEV Rewards, are paid to the “FeeRecipient” address configured on the validator and provide immediate liquidity to stakers.
The total individual rewards per validator vary widely and it is impossible to predict which validators will receive the highest rewards. This is due to the fact that each validator is chosen randomly by the protocol for block proposals (~5-6 times per year on average), and the Tx/MEV rewards of specific blocks can be extremely different. Great background and data on the variability can be found here and here.
While Blockdaemon obviously has no influence over the randomness in-protocol, or the specific MEV opportunities in blocks, our commitment to consistent uptime increases the probability our validators to capture for more rewards. This was also helped by the fact that we were among the first staking infrastructure providers to activate MEV-Boost directly after The Merge which helped our customers be the first to capture these additional rewards.
Understanding liquid staking receipt token value
The #1 question in regards to institutional liquid staking is the valuation of the receipt token. People are afraid of a “de-pegging”, and cite the fluctuation of $stETH (from LIDO) as seen in the summer of 2022 . It’s important to note, any receipt token is not pegged but instead is naturally priced lower than the underlying staked asset ($ETH).
This should come as no surprise since the holding underlying asset is usually preferable, even when the receipt holder has the opportunity to earn rewards on both the staked asset and the associated receipt token. Receipt tokens should not be compared to “stable-coins” without extraneous collateral, like $UST. Rational investors can buy $stETH at a discount and receive 1:1 $ETH once withdrawals are enabled post Shanghai Fork. Receipt tokens received by staking your $ETH therefore can be seen as a cushion to absorb market sentiment and help the underlying protocol. Learn more about our institutional, KYC compliant liquid staking offering.
How institutions can use test networks to trial staking
While some crypto-native entities still “test in prod”, enterprises have long established the best of practice of developing new endeavors on testnet as to not endanger any real token assets.
Institutions can practice staking with “test” tokens on Testnet for staking as well, via the Ethereum test network named “Goerli”. The native coin GoerliEth has no value but allows for full end-to-end testing of the process. Whether it is staking via a custodian or an individual wallet, Blockdaemon customers can reach out to their Technical Account Manager to receive GoerliEth to try staking on Testnet themselves.
Existing users of the old Ropsten testnet should remember to start migrating to Goerli quickly, since Ropsten will be decommissioned soon. This is also important for our existing node infrastructure customers.
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Blockdaemon Ethereum Ecosystem Lead
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