Chainalysis suggests that ETH could be decoupled from other cryptocurrencies after Merge, as its staking rewards may make it similar to commodities or bonds. Chainalysis, a crypto analytics firm, has suggested that Ether’s price ( ETH) may be decoupled from other crypto assets after Merge. Staking yields could drive strong institutional adoption.
Chainalysis reported Wednesday that the Ethereum upgrade will allow institutional investors to stake yields similar to bonds and commodities, while making it more eco-friendly.
According to the report, ETH staking will offer a 15-20% annual yield for stakers. This makes ETH an attractive bond option for institutional investors considering that treasury securities yield less.
Staking yields will bring mass institutional adoption
Ether’s value could fall from other cryptocurrencies after The Merge. Its staking rewards and similarity to an instrument such as a bond or commodity with carry premiums will make it comparable to an instrument such as a bond, commodity, or currency.
Chainalysis data shows that the number of institutional ETH-stakers, those who have $1 million worth of ETH staked or greater, has “been steadily rising” from less than 200 in January 2021 to about 1,100 by August 2018.
The firm points out that, if the number rises faster after The Merge this would confirm that institutional investors do indeed view Ethereum staking a good yield-generating strategy.
The Chainalysis report also suggests ETH to attract more institutional and retail traders after The Merge. The upgrade will make staking a more attractive investment tool.
Ethereum’s Shanghai upgrade will launch around 12 months after the merge
ETH staked currently is locked in a smart contract, which cannot be withdrawn until the Shanghai upgrade takes place around six to twelve months after the Merge.
The staked ETH market is currently illiquid. Some staking services providers offer synthetic assets that reflect the value of staked Ether. However, “those synthetics do not always maintain a 1:1 peg,” argues a firm.
The report states that the Shanghai upgrade […] will enable users to withdraw staked Ether at their will. This will provide more liquidity for stakers, and make staking more attractive.”
Another important factor is that Ethereum’s proof of-stake (PoS) transition will see its energy requirements drop as much as 99% after the upgrade, according the Ethereum Foundation.
“The switch from PoS to Ethereum will also make it more eco-friendly. This could make those who have sustainability commitments more comfortable using the asset. This is especially true for institutional investors.
ConsenSys, which is the company behind MetaMask and was founded by Joseph Lubin, Ethereum’s co-founder, published this week a similar report on the “impact of Merge on Institutions”.
The report echoes similar sentiments about ETH staking rewards, environmental sustainability attracting institutions, and also highlights the importance PoS Ethereum chain “producing stronger safety guarantees for institutional investors” as well as ETH’s potential to be a deflationary investment.
“Reduced ETH issuances and increased burns will systematically decrease ETH supply — putting down deflationary pressure upon ETH and alleviating institution concerns about token price dropping below zero and increasing the likelihood of an increase.