It has now officially been one year since the Ethereum Merge. Last year, the Merge upgrade ushered in the advent of a new era for not only the Ethereum network but for the broader staking landscape, as the world’s second-largest digital asset transformed from proof-of-work asset into by far the largest proof-of-stake digital asset by market value (worth approximately $200 billion at time of writing).
This article is part of CoinDesk’s “Staking Week.” Chen Fang is the chief operating officer of BitGo.
The transition to proof-of-stake not only significantly reduced Ethereum’s energy intensity, it allowed a larger number of holders to participate in the network and to earn rewards for validating transactions and securing the network by staking their holdings.
These rewards are no small matter — the recent Q2 2023 “State of Staking” report from Kraken finds that total staking rewards for all cryptocurrencies grew to $5 billion on an annualized basis during the quarter.
Staking can thus help to soften the blow of a bear market, allowing holders to weather the storm until asset prices return to more attractive levels
Staking is growing into a massive ecosystem, with the report showing that the top 35 proof-of-stake cryptocurrencies combine for a market cap of $288 billion, and that there is now $68 billion worth of value staked in these assets. One year in, it’s clear staking continues to be an attractive option for Ethereum holders.
Generating competitive rewards in a risk-off market
The primary appeal of staking, in addition to helping to secure and further participate in the network, is that it creates the ability for participants to earn rewards on their holdings. Last year’s bear market or “crypto winter” was a painful downdraft for many crypto investors, as rising interest rates and the implosion of FTX caused broad losses across the market.
But just as equity market investors turn to more defensive stocks with higher dividend yields like utilities and consumer staples during times of turmoil, staking is an appealing strategy for Ethereum and proof-of-stake token holders during a risk-off market environment. Staking allows these holders to generate a return while retaining their assets.
With staking, holders no longer need to sell in order to generate a return. Staking can thus…
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