How will the Ethereum consolidation change the dynamics of liquidity deployment?

The staking has been a hit for quite some time. Like most things to do with crypto space, this too can be a complex or simple concept depending on how deep it is.

For most traders and investors, staking is a way to earn rewards for blocking certain cryptocurrencies. While this is the crucial point, other aspects also need to be explored.

Staking is usually done through staking pools. Cryptocurrencies are used to earn rewards as the underlying blockchain needs them to function. Essentially, staking-enabled cryptocurrencies use the PoS consensus mechanism.

Staking also contributes to the security and efficiency of blockchains. In addition, staking makes the underlying chain more resistant to attack and improves transaction processing.

The dynamics of change

Earlier this year a number of well-known institutions joined the staking and strengthened their position in the community. For example, investment banking giant JP Morgan raised in report End of June that they believe in the power of staking.

The aforementioned report entitled “Introduction to Staking – A Rapid Growth Opportunity for Crypto Intermediaries and Customers” emphasizes that crypto staking makes the “crypto ecosystem” more attractive as an asset class.

In addition, the bank emphasizes that staking can be an important source of income for private and institutional investors.

“We estimate staking is currently a $ 9 billion business for the crypto economy, growing to $ 20 billion after Ethereum consolidation, and could reach $ 40 billion by 2025 if PoS becomes the dominant protocol developed.”

The “merger” of Ethereum will certainly change the dynamics of the staking market. According to the latest data, there is nearly $ 10 billion in cash-backed assets compared to $ 9 billion as reported by JP Morgan. Compared to the present, that number must at least quadruple by 2025 to reach $ 40 billion.

Is it doable?

Right now, some players are clearly dominating the liquid wagering market. Most of the protocols have a large percentage of Ethereum, followed by Terra.

At over $ 6.75 billion and $ 2.41 billion, respectively, Lido Finance and Anchor Protocol appear to stand out the most right now. However, considering the slowdown in recent months, JP Morgan’s target above seems too far off.

Conversely, as the staking craze builds, things could turn in favor of the staking market over the next few months. Therefore, only time will show whether the above-mentioned potential projects can be successful in the future.

The source: Messari

The following scene if merge

While earning staking rewards while maintaining liquid collateral opens up a myriad of opportunities for additional profit, it comes with short-term anxiety.

The bull market doesn’t last forever and the consistently delayed merger along with the shift in risk aversion could lead investors to move money from Ethereum to other Layer 1. In fact, protocols like Fantom and Solana along with Terra could be the ideal target.

Also note that validators will be temporarily unavailable during the first phase after the merge, which may result in a cut. This also affects the amount of collateral support for the tokens used. This was emphasized by Messari, founder and CEO Ryan Selkis called:

“… While I am optimistic about the long term, I am a little worried about the risk of liquidation in the short term.”

As long as the funds locked as tokens remain in the ecosystem, the staking market will thrive. But the pre- and post-merger phase will certainly be pretty shaky.

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