Binance Research: Ethereum’s Switch to Staking Will Transform Industry

Binance’s latest research report has argued that with Ethereum’s pending switch to proof-of-stake (PoS), staking is set to have a major impact on the industry. 

The report, published on Oct. 28, highlights that the largest 10 crypto assets supporting — or poised to support —  staking represent a cumulative market capitalization of $25.8 billion. 

As of press time, this means prospective staking dominance stands at roughly 10% of the total industry market capitalization.

Passive investment strategy

As previously reported, staking is specific to Proof-of-Stake (PoS) blockchains and essentially allows network participants to passively earn a form of “interest” by depositing their tokens to both maintain the network and potentially earn rewards.

As opposed to Proof-of-Work (PoW) blockchains like Bitcoin, nodes in a PoS network are engaged in validating blocks rather than mining them. A deterministic algorithm selects block validators based on the number of tokens a given node has staked in their wallet — i.e. deposited as collateral in order to complete the addition of the next block to the chain.

Ten largest crypto assets for staking, as of Oct. 2019

Ten largest crypto assets for staking, as of Oct. 2019. Source: Binance Research

Excluding Ethereum, the cumulative staking market capitalization, as of Oct. 24, is worth around $11.2 billion — $6.4 billion of which is staked. 

Lock-ups and liquidity

Across all blockchains, Binance’s data indicates that 43% of tokens are staked vs. 57% in free circulation. 

Among coins listed on its platform, altcoins Algorand, Tezos, and Cosmos displayed high staking ratios — the ratio of the amount staked at a particular point in time divided by the total circulating supply — at over 70% of coins staked. Tron and Qtum meanwhile exhibit a staking ratio of under 25%.

Binance outlines the potential risk-return profile of staking as a passive investment strategy vs. active trading. It notes that entrants should analyze the possible liquidity risks posed by different blockchains’ lock-up period.

While some chains may allow users to “un-stake” their coins instantaneously — but forfeit any unclaimed rewards — others may entail a mandatory lockup period that renders funds illiquid and could lead to missed active investment opportunities.

Ethereum 2.0 to roll out in January 2020

As reported yesterday, a senior ConsenSys executive has revealed that Ethereum 2.0 validators can expect to earn from 4.6% to 10.3% as rewards for staking on an annual basis. 

To become a validator, participants are required to hold a minimum of 32 Ether (ETH) — worth $5,952 by press time. The transition to Ethereum 2.0 is currently slated for January 2020.