Proof of Stake
Ethereum: The Decentralized Data Center
BitOoda Proof of Stake Research, 5/17/23
Vivek Raman
While we have recently been focusing on the potential for the ZKP ecosystem to blossom as a superset of the blockchain ecosystem, activity on the Ethereum network has been surging for several weeks. In this report, we return to the ETH world for a brief update on the state of the network and Ethereum’s future:
Nonexistent Staking Withdrawal Queue.
Ethereum’s hard fork, which enabled staking withdrawals from the Beacon chain, went live on April 12. Although 2.7mm ETH has been withdrawn, withdrawals have been more than offset by an influx of deposits, resulting in a net addition of staked ETH (+400k ETH over the past 5 weeks). As a result, the withdrawal queue to exit ETH staking is effectively nonexistent, while the queue for entering staking is almost 1 month.
Lido stETH Unstaking Activated.
The biggest contributor to staked ETH has been liquid staking ETH, led by Lido’s stETH token. This was because stETH allowed users with less than 32 ETH to participate in staking while retaining the ability to synthetically “unstake” by trading stETH back to ETH. Now that Lido’s unstaking mechanism is fully live, it paradoxically de-risks Lido and could result in even more staking via liquid staking protocols.
Elevated ETH Fees (Meme Tokens).
Ethereum has had over a month of deflationary blocks, meaning that average fee burn has been higher than ETH issuance for a month of consecutive blocks! And this is during the depths of an ongoing crypto bear market. Unfortunately, this activity has been largely driven by meme tokens (with PEPE token as one example) rather than real world applications. But it highlights that as sustainable, regulated demand drivers come to Ethereum, ETH’s monetary policy could be consistently deflationary going forward.
ETH Staking Yield Surged.
Although ~80% of fees are burned, the remaining ~20% are distributed to stakers, adding incremental yield beyond block issuance. Given the surge in ETH fees over the past month, staking yields have been elevated, averaging over 7% for non-liquid staking solutions. Given Ethereum has de-risked staking with the Shanghai hard fork enabling withdrawals, a higher staking yield could bring in additional institutional players into the ecosystem.
The Bad: Ethereum Finality Hiccup.
Not all Ethereum developments have been seamlessly positive over the past few weeks. The Ethereum network experienced two back-to-back days of delayed finality, meaning that blocks of transactions did not reach the end desired state where they cannot be altered without mass validator collusion. However, it is important to note that transactions still processed and blocks were proposed – finality was just delayed. Ultimately, the Ethereum chain maintained its uptime due to the diversity of Ethereum client software run by the set of node operators.
The Good: L2 Ecosystem Blossoming.
On the flipside, Ethereum is ready to onboard users for mass adoption via the maturation of L2 solutions. There is a suite of ZK Rollups (Polygon, zkSync, Scroll, Taiko, Linea, Starkware) and Optimistic Rollups (Arbitrum, Optimism, Base) that are growing in users, capital deployed, and apps that could ease the fee burden on L1.
Ethereum: Decentralized Data Center.
The demand for Compute continues to grow rapidly, accelerated largely by AI/ML. Ethereum’s architecture is solidifying its use case beyond “crypto” to act as an alternate Compute engine. The Ethereum network acts as a decentralized datacenter, abstracting away infrastructure and opening up Compute access to all.
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While we have recently been focusing on the potential for the ZKP ecosystem to blossom as a superset of the blockchain ecosystem, activity on the Ethereum network has been surging for several weeks. In this report, we return to the ETH world for a brief update on the state of the network and Ethereum’s future:
Nonexistent Staking Withdrawal Queue.
Ethereum’s hard fork, which enabled staking withdrawals from the Beacon chain, went live on April 12. Although 2.7mm ETH has been withdrawn, withdrawals have been more than offset by an influx of deposits, resulting in a net addition of staked ETH (+400k ETH over the past 5 weeks). As a result, the withdrawal queue to exit ETH staking is effectively nonexistent, while the queue for entering staking is almost 1 month.
Lido stETH Unstaking Activated.
The biggest contributor to staked ETH has been liquid staking ETH, led by Lido’s stETH token. This was because stETH allowed users with less than 32 ETH to participate in staking while retaining the ability to synthetically “unstake” by trading stETH back to ETH. Now that Lido’s unstaking mechanism is fully live, it paradoxically de-risks Lido and could result in even more staking via liquid staking protocols.
Elevated ETH Fees (Meme Tokens).
Ethereum has had over a month of deflationary blocks, meaning that average fee burn has been higher than ETH issuance for a month of consecutive blocks! And this is during the depths of an ongoing crypto bear market. Unfortunately, this activity has been largely driven by meme tokens (with PEPE token as one example) rather than real world applications. But it highlights that as sustainable, regulated demand drivers come to Ethereum, ETH’s monetary policy could be consistently deflationary going forward.
ETH Staking Yield Surged.
Although ~80% of fees are burned, the remaining ~20% are distributed to stakers, adding incremental yield beyond block issuance. Given the surge in ETH fees over the past month, staking yields have been elevated, averaging over 7% for non-liquid staking solutions. Given Ethereum has de-risked staking with the Shanghai hard fork enabling withdrawals, a higher staking yield could bring in additional institutional players into the ecosystem.
The Bad: Ethereum Finality Hiccup.
Not all Ethereum developments have been seamlessly positive over the past few weeks. The Ethereum network experienced two back-to-back days of delayed finality, meaning that blocks of transactions did not reach the end desired state where they cannot be altered without mass validator collusion. However, it is important to note that transactions still processed and blocks were proposed – finality was just delayed. Ultimately, the Ethereum chain maintained its uptime due to the diversity of Ethereum client software run by the set of node operators.
The Good: L2 Ecosystem Blossoming.
On the flipside, Ethereum is ready to onboard users for mass adoption via the maturation of L2 solutions. There is a suite of ZK Rollups (Polygon, zkSync, Scroll, Taiko, Linea, Starkware) and Optimistic Rollups (Arbitrum, Optimism, Base) that are growing in users, capital deployed, and apps that could ease the fee burden on L1.
Ethereum: Decentralized Data Center.
The demand for Compute continues to grow rapidly, accelerated largely by AI/ML. Ethereum’s architecture is solidifying its use case beyond “crypto” to act as an alternate Compute engine. The Ethereum network acts as a decentralized datacenter, abstracting away infrastructure and opening up Compute access to all.
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
While we have recently been focusing on the potential for the ZKP ecosystem to blossom as a superset of the blockchain ecosystem, activity on the Ethereum network has been surging for several weeks. In this report, we return to the ETH world for a brief update on the state of the network and Ethereum’s future:
Nonexistent Staking Withdrawal Queue.
Ethereum’s hard fork, which enabled staking withdrawals from the Beacon chain, went live on April 12. Although 2.7mm ETH has been withdrawn, withdrawals have been more than offset by an influx of deposits, resulting in a net addition of staked ETH (+400k ETH over the past 5 weeks). As a result, the withdrawal queue to exit ETH staking is effectively nonexistent, while the queue for entering staking is almost 1 month.
Lido stETH Unstaking Activated.
The biggest contributor to staked ETH has been liquid staking ETH, led by Lido’s stETH token. This was because stETH allowed users with less than 32 ETH to participate in staking while retaining the ability to synthetically “unstake” by trading stETH back to ETH. Now that Lido’s unstaking mechanism is fully live, it paradoxically de-risks Lido and could result in even more staking via liquid staking protocols.
Elevated ETH Fees (Meme Tokens).
Ethereum has had over a month of deflationary blocks, meaning that average fee burn has been higher than ETH issuance for a month of consecutive blocks! And this is during the depths of an ongoing crypto bear market. Unfortunately, this activity has been largely driven by meme tokens (with PEPE token as one example) rather than real world applications. But it highlights that as sustainable, regulated demand drivers come to Ethereum, ETH’s monetary policy could be consistently deflationary going forward.
ETH Staking Yield Surged.
Although ~80% of fees are burned, the remaining ~20% are distributed to stakers, adding incremental yield beyond block issuance. Given the surge in ETH fees over the past month, staking yields have been elevated, averaging over 7% for non-liquid staking solutions. Given Ethereum has de-risked staking with the Shanghai hard fork enabling withdrawals, a higher staking yield could bring in additional institutional players into the ecosystem.
The Bad: Ethereum Finality Hiccup.
Not all Ethereum developments have been seamlessly positive over the past few weeks. The Ethereum network experienced two back-to-back days of delayed finality, meaning that blocks of transactions did not reach the end desired state where they cannot be altered without mass validator collusion. However, it is important to note that transactions still processed and blocks were proposed – finality was just delayed. Ultimately, the Ethereum chain maintained its uptime due to the diversity of Ethereum client software run by the set of node operators.
The Good: L2 Ecosystem Blossoming.
On the flipside, Ethereum is ready to onboard users for mass adoption via the maturation of L2 solutions. There is a suite of ZK Rollups (Polygon, zkSync, Scroll, Taiko, Linea, Starkware) and Optimistic Rollups (Arbitrum, Optimism, Base) that are growing in users, capital deployed, and apps that could ease the fee burden on L1.
Ethereum: Decentralized Data Center.
The demand for Compute continues to grow rapidly, accelerated largely by AI/ML. Ethereum’s architecture is solidifying its use case beyond “crypto” to act as an alternate Compute engine. The Ethereum network acts as a decentralized datacenter, abstracting away infrastructure and opening up Compute access to all.
Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.
Analyst Certification
Vivek Raman, denoted by an “AC” on the cover of this report hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Conflicts of Interest
This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.
General Disclosures
Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.
Ooda Commodities, LLC is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.
BitOoda Technologies, LLC is a member of FINRA.
“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.
Copyright 2022 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.
In this report, we offer a variety of institutional frameworks to analyze ETH, alongside BTC, as a part of a diversified crypto portfolio. Bitcoin has transcended into the mainstream, accelerated by the acceptance of spot BTC ETFs. ETH, while more complex, has unique use cases that could position it as a premier crypto asset alongside BTC.