How will Ethereum consolidation change the dynamics of liquidity staking?

Staking has been a hit for quite some time. Like most things related to the crypto space, even this can be a complex or simple concept, depending on how in-depth it is.

For most traders and investors, staking is a way of earning rewards for locking down certain cryptocurrencies. Although that is the key point, other aspects need to be explored as well.

Staking usually takes place through staking pools. Cryptocurrencies are staked to earn rewards because the underlying blockchain needs them to function. In essence, staking-enabled cryptocurrencies use the PoS consensus mechanism.

Staking also contributes to the security and efficiency of blockchains. What’s more, staking makes the underlying chain more resistant to attacks and enhances transaction processing.

The dynamics of change

Earlier this year, a series of well-known institutions joined staking, boosting their position in the community. Investment banking giant JP Morgan, for example, emphasized in its late-June report that it believes in the power of staking.

Furthermore, the bank emphasizes that staking has the potential to act as a primary source of revenue for retail and institutional investors.

Ethereum’s “merge” will certainly change the staking market dynamics. According to the latest data, there is almost $10 billion in liquidity staked assets compared to $9 billion as reported by JP Morgan. Compared to the present, this number must increase at least 4 times to reach $40 billion by 2025.

Is it feasible?

Right now, a few players are clearly dominating the liquid staking market. Most protocols have a large stake in Ethereum, followed by Terra.

With over $6.75 billion and $2.41 billion, Lido Finance and Anchor Protocol seem to stand out the most at the moment. However, observing the slowing pace over the past few months, JP Morgan’s aforementioned goal seems too far-fetched.

Conversely, over the next few months, if the staking craze becomes more intense, things could be shaped in favor of the staking market. Therefore, only time will tell if the aforementioned potential projects can be successful in the future.

Source: Messari

Background after merging

While being able to earn staking rewards while maintaining liquid collateral opens up a host of additional profit possibilities, it comes with short-term fear.

The bull market doesn’t last forever, and the consistently delayed Merge along with the shift in risk-aversion could cause investors to move money from Ethereum to other layers. In fact, together with Terra, protocols like Fantom and Solana could be the ideal destination.

Also, be aware that validators are temporarily down during the initial post-merge period, which can lead to slashing. This will also affect the amount of collateral support of staked tokens.

For now, as long as the funds locked as tokens remain in the ecosystem, the staking market will thrive. But the pre- and post-merger period is bound to be quite wobbly.

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