Blog post

Ethereum post-merger staking rewards will likely be lower than predicted


Ethereum’s (ETH) transition from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism — the so-called merger — won’t happen in June, as many l ‘did predicted.

Like reported by CryptoSlate on April 14, Ethereum core developers will not yet be ready for the merger until the end of Q3. The highly anticipated merger will mark Ethereum’s transition to PoS, minimizing its power consumption and making the network safer and more profitable to invest in.

Staking is one of the most anticipated features of the post-merger Ethereum network.

According to IntoTheBlock, initial estimates claimed that staking would give users between 12% and 15% in rewards. However, it looks like the percentage will be much lower after the merger.

Significantly lower post-merger staking yields

However, according to a blog post per InteTheBlock, conditions have since changed, with on-chain metrics indicating significantly lower staking yields once the merger is complete.

To date, over 11.5 million ETH is staked – and locked – in the beacon chain staking contract, with the amount of ether staked continuing to grow as stakers not only anticipate the reward rate current of about 5 to 7%, but especially the projected future. 12-15% reward rate.

The amount of ETH locked is around 9.5% of the entire circulating supply. According to IntoTheBlock, in dollar terms, the growth can be appreciated with the value at stake approaching all-time highs despite the 37% decline in the market price of ETH since its all-time high in early November 2021.

Staking has accelerated since the launch of stETH

This growth of staked ether has accelerated since the launch of stETH, a staking-derived token used as collateral on the Aave loan protocol. Unfortunately, the rise in staked ETH leads to a proportional decrease in rewards.

In other words, the more Ether staked, the fewer rewards per Ether staked.

In a sense, ether staking is a victim of its own success. With delayed merger »some months,“This likely means that the amount of ETH staked will increase even more, leading to lower returns.

According to IntoTheBlock, the amount of ETH staked is one of three key factors affecting post-merger staking rewards. These three factors are the amount of Ethereum gas fees paid by users, the percentage of fees burned, and the number of ETH staked.

Gas fees and trading volumes are down sharply

The amount of gas fees paid to use Ethereum has dropped significantly as activity in DeFi and NFT dried up. Trading volumes on the largest NFT marketplace OpenSea similarly fell from a high of around $250 million on Feb. 1 to $70 million on April 14.

Trading volumes on the equally popular decentralized token exchange Uniswap have declined to a lesser extent – ​​down around 33% from the weekly high in late January compared to last week.

However, due to the relatively sideways trend in the market, there has arguably been less urgency to execute trades, leading to traders being less willing to pay high fees.

Currently, miners earn transaction fees that are not burned as a reward for maintaining the network. However, after Ethereum switches to PoS, transaction fees will be paid to those who stake instead.

Therefore, the decline in the level of network activity has also weighed on the financial interests of ether holders.

6% is the new 12%

According to IntoTheBlock, Ethereum’s annual staking reward is expected to be between 6% and 8% if the merger is implemented in September 2022.

While these yields may be less attractive, barely touching the US inflation rate, for example, they reflect the maturation of Ethereum, which has over $35 billion of ether staked at current market prices.

Ultimately, the growth in the amount of ETH staked is good for the security of the Ethereum network – despite the lower rewards – because it makes it harder and more expensive to mount a 51% attack.