As anticipation and mainstream media coverage begin to ramp up ahead of “the Merge”, a popular narrative about staked ether (ETH) and its derivatives is beginning to take shape: namely, that staked ETH could be an ideal investment vehicle for major institutions looking to dip their toes into crypto holdings. Currently, staked ETH is already a wildly popular investment among crypto traders and investors, even though those deposits are illiquid and impossible to trade until sometime after the Merge takes place. Liquid staking solutions – services that offer users a tradable token representing those deposits in the ETH 2.0 staking contract– currently account for roughly $20 billion in deposits, per DeFiLlama, almost 10% of all of DeFi’s total value locked (TVL). The reason for this incredible success is attributable to how staked ETH derivatives offer yield farmers lucrative opportunities as part of complex farming strategies. For instance, users can leverage stETH, Lido’s staked ETH derivative, as collateral for many DeFi protocols. Curve’s single largest pool is “steth,” with $4.91 billion in total value locked. Aave is another main destination for stETH, with $1.63 billion total stETH supplied. One popular strategy is when a user deposits their ETH into the Ethereum staking contract through Lido and receives stETH, then supplies their stETH as collateral to borrow more ETH against it, and re-stakes that borrowed ETH for stETH. The user can repeat this process multiple times over, in large part because the interest gained by staking is much higher than the borrowing rates across DeFi lending platforms. For instance, the APR for staking ETH is approximately 4%, while ETH’s variable interest rate for borrowing is 2.33% on AAVE’s lending platform, allowing them to create a leveraged yield position. While the strategies institutions and individual farmers utilize with the assets will be different, staked ether’s core properties appeal to both for similar reasons. A popular talking point among Ethereum maximalists is the “triple halvening” – after the Merge, ETH’s yearly inflation rate will drop from 4.3% to 0.43%, with new emissions falling from 12,000 ETH a day to 1,280 ETH a day. Combined with EIP 1559, which introduced an Ethereum burn mechanism, the switch to proof-of-stake will be the equivalent of three Bitcoin “halvenings” at once, the argument goes. Read more: Traders Bet on Ether Staking After Ethereum 2.0 Upgrade While traders have been excited at the forthcoming ETH supply shock for years (not to mention the beefier staking returns, which by some estimates might exceed 10%), institutions are starting to get the message as well. In March, staking services provider Staked introduced a staked ETH trust aiming for 8% returns. Likewise, in June, Switzerland-based Sygnum Bank introduced institutional staking services for its clients. Even Goldman Sachs is getting in on the action. The crypto market can be intimidating for institutional investors because it so rarely seems tethered to any fundamentals – the mess of dogcoins, memecoins and outright scams would put off any self-respecting suit. But trackable returns, provable scarcity and technological infrastructure – these are qualities an investment desk can appreciate. Over 10 million ETH worth $34 billion is currently staked in the ETH 2.0 contract. As the buzz approaching the Merge grows louder, we expect to see more headlines about major financial entities getting involved as well. Zelda’s Big Day This has been an exciting week at Valid Points, as CoinDesk’s very own Beacon Chain validator, dubbed “Zelda,” successfully proposed a block yesterday. Zelda has been active since February 2021, and with Zelda’s new block proposal our total block proposals has increased to eight! Zelda was awarded 0.0289 ETH or $98.23 for the successful block proposal. As shown in the graph in the Validator Health Data Visualization, there was a large increase in daily income yesterday, as block proposals are greater than attestations in one-time rewards. Zelda, over its entire lifetime, has earned 2.2177 ETH or $7,537.96. Zelda’s last block proposal occurred in November 2021, five months ago. According to data sourced from etherscan.io, the average number of blocks produced daily in 2022 on the Ethereum network is approximately 6,455 blocks, and with 326,516 active validators an individual validator such as Zelda has a slim chance of receiving a block proposal each day. Congrats, Zelda! | 