Shanghai’s Ethereum upgrade, scheduled for mid-March, will increase the blockchain’s staking ratio in the medium term, JPMorgan (JPM) said in a research report on Wednesday.
There is plenty of room for the 14% ratio to increase, the bank said, given that the average of other proof-of-stake (PoS) networks is about four times higher.
“Assuming the staking ratio converges over time to the 60% average of other major PoS networks, the number of validators could increase from 0.5 million to 2.2 million and the yield would increase to 7.4% current at around 5%,” analysts led by Nikolaos Panigirtzoglou wrote. In a proof-of-stake system, validators attest that a block is accurate and can be added to the blockchain.
Much of the future increase in staking will likely shift to liquid staking protocols such as Lido, the bank said. These protocols “enable liquidity for staked assets, which would otherwise be locked into staking contracts, by providing an equal amount of derivative token in exchange for staked ether that can be traded.”
JPMorgan notes that tokens derived from the Liquid Staking Protocol have normally traded at prices below their underlying asset, but as the Shanghai upgrade nears, they are converging at parity with Ether (ETH). ).
It could be argued that the usefulness of these liquid staking protocols would be reduced closer to the upgrade date, the note states. The counter-argument is that the usefulness of these protocols is not just limited to providing liquidity, but also acting as an intermediary for retail investors who would otherwise face a barrier of 32 ETH ($52,000 ) for staking, indicates the note.
As a result, liquid staking protocols have become major players in decentralized finance (DeFi), raising concerns about network centralization, the note adds.