Ethereum's 'overall increase' in staking

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Ethereum's 'overall increase' in staking

JPMorgan analysts say that Ethereum's blockchain is always changing and one of its latest features poses a stability risk.

Previous upgrades, the Merge and Shanghai, led to an 'overall increase in staking activity on the Ethereum network,' analysts at investment bank JP Morgan said on Thursday. The emergence of liquid staking providers has been a significant contributor to this increase in staking.

The protocols made staking accessible to common investors by overcoming obstacles such as the high staking requirement of 32 Ether, technical complexities and the illiquidity of the staked Ether, JPMorgan said.

Liquid staking provides investors with access to their invested funds, which would otherwise be locked in the form of liquidity tokens, like Lido's stETH. The tokens can be used for resting on DeFi platforms.

JP Morgan recommends liquid staking tokens for lending, borrowing, and yield farming, according to JP Morgan. This generates more yield, which is highly desirable since yields on Ethereum have fallen from earlier this year.

The value of standard staking yields on Ethereum, excluding fees and other rewards, has decreased to 3.5% from over 4.3% before the Shanghai upgrade in April.

Additional rewards, including fees and maximum extractible value, appear to have declined, JPMorgan said, down from 3% in April to 2% more recently.

JPMorgan has said it is finalizing its plan to buy shares for a third consecutive year.

With Ethereum's yields falling against the backdrop of rising yields in traditional finance, liquid staking offers an exciting prospect, namely through restaking.

Reduction is a blockchain feature that enables users to double-stake their Ethereum on different protocols, or even chains. It went public on Ethereum in June, through US-based firm EigenLayer, which raised $50 million in a Series A round in March.

Investors will find an abundance of opportunities if the new feature is implemented. It's not risk-free, though, as JP Morgan and others have pointed out.

In May, Ethereum's co-founder Vitalik Buterin raised concerns about 'overloading' the network with complex and poorly-designed restaking models, and now analysts have shared their own warning.

In May, Justin Drake, a researcher at Ethereum Foundation, told DL News.

For now, EigenLayer is the only option for investors that want to restake their funds. The total value locked on EigenLayer is around $226 million, according to DeFiLlama data, a metric that tracks how much crypto is locked up in a DeFi protocol's smart contracts.

Adam Morgan McCarthy, a London-based market Correspondent at DL News, is the Editor-in-Chief of the Markets section of DL News.