The cryptocurrency analytics company Chainalysis has proposed that after the Merge, the price of Ether (ETH) could become decoupled from the prices of other cryptocurrencies, with the potential for staking yields to drive strong institutional adoption.
According to a report published on Wednesday by Chainalysis, the upcoming upgrade to Ethereum will, in addition to becoming much friendlier to the environment, offer institutional investors staking yields that are comparable to those offered by certain financial instruments, such as bonds and commodities.
The report stated that ETH staking is expected to offer a yield of 10-15% annually for stakers, which makes ETH a “enticing bond alternative for institutional investors.” This is because the yields offered by treasury bonds are significantly lower in comparison to the yields offered by ETH staking.
There is a possibility that the price of Ethereum will become uncoupled from the price of other cryptocurrencies after The Merge. This may happen due to the fact that its staking rewards will make it comparable to an instrument such as a bond or commodity that has a carry premium.”
According to data provided by Chainalysis, the number of institutional ETH stakers, which are defined as individuals or organizations that have staked at least $1 million worth of ETH, has “been steadily increasing” from less than 200 in January 2021 to approximately 1,100 as of August of this year.
The company points out that the hypothesis that institutional investors “do indeed see Ethereum staking as a good yield-generating strategy” should be validated if this number increases at a faster rate after The Merge.
The Chainalysis report predicts that Ethereum will attract a greater number of retail and institutional traders after The Merge. This is due to the fact that the upcoming upgrade will make staking a significantly more appealing investment tool.
At the moment, any ETH that has been staked is kept in a smart contract and cannot be withdrawn until the Shanghai upgrade is implemented, which is expected to take between six and twelve months after the Merge is completed.
The result of this is that the market for staked ETH is currently illiquid, which has led some staking service providers to offer synthetic assets that represent the value of the staked Ether. The disadvantage of this, according to the company, is that “those synthetics don’t always maintain a 1:1 peg.”
The information that was provided in the report states that “The Shanghai upgrade […] will allow users to withdraw staked Ether at will,” which will provide more liquidity for stakers and make staking an overall more attractive proposition.
“Ethereum will become more eco friendly after the transition to Proof of Stake, which has the potential to put investors who have sustainability commitments at ease with regard to the asset in question. This is especially true for those who invest through institutions.
ConsenSys, the company behind the MetaMask wallet and founded by Joseph Lubin, one of Ethereum’s co-founders, also released a report this week examining the “impact of the Merge on Institutions.”
The report echoes similar sentiments regarding the attraction of institutions by ETH staking rewards and environmental sustainability. The report does, however, emphasize the significance of the Proof-of-Stake Ethereum chain in “producing stronger security guarantees for institutional investors,” in addition to ETH’s potential to become a deflationary asset:
“The overall supply of ETH will gradually reduce because of both a reduction in the amount of new coins being minted and an increase in the number of ETH coins being burned. This will put deflationary pressure on ETH, which will alleviate institutional concerns of the token price dropping to zero and increase the likelihood of an increase in value.”
Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of EGG Finance. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.