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With macroeconomic conditions driving overall market sentiment and price action, it may seem like little has changed since Ethereum was integrated into the Proof of Stake (PoS) consensus mechanism. ETH’s price has fallen 14.4% since the merger, but the strength of the US dollar has surged.
But behind the scenes, the consolidation is causing major changes to ETH’s tokennomics. As many readers may already know, the change from Proof-of-Work (PoW) to his PoS was previously an Ethereum miner encouraged to build and verify blocks on his mainnet. is no longer needed.
This is because validators who staked ETH to secure the network have replaced validating blocks on-chain. In other words, this change reduced his ETH emissions per block by nearly 95%. A live update of this ultrasonic money A webpage that tracks all stats about the current emissions of ETH compared to PoW Ethereum.
This figure shows that the ETH inflation rate has dropped significantly. This supply shock means that future increases in demand can cause significant price volatility. Additionally, the supply of ETH will be deflationary as a portion of all ETH used for gas is burned per transaction at a gas rate of 16 gwei.
Earlier this year, there was more conversation about the risks of staking ETH and the value of liquid staking ETH such as stETH. Since the successful integration, many of these concerns seem to have disappeared. This is demonstrated by the recent price convergence between ETH and stETH, as shown below, suggesting that both should have equal economic value.
The new standard seems to see ETH as being redeemable for liquid ETH tokens. Lido’s stETH is already well-known, and other alternatives such as Rocketpool’s rETH are gaining traction as a way to receive staking rewards while spending assets elsewhere (such as DeFi). As seen in the chart below, the appetite for ETH staking has been on a continuous upward trend, and has accelerated since the integration.
In addition to the increase in the amount of ETH, the number of addresses staking ETH started to grow exponentially after the integration. is important, but the new address shows that new depositors are participating in securing the chain and getting rewarded for doing so.
As previously mentioned, without the minor rewards emissions would have been significantly reduced. However, rewards are still distributed to ETH stakers in small amounts. Validator nodes that propose and validate new blocks receive rewards for each block successfully added to the chain. These rewards are distributed to each ETH staker who delegates ETH to the validator.
While these rewards will be less than those issued to keep miners verified (currently 4.6% APY), the cost of accessing these rewards is more than the cost of building mining operations. It is insignificant in comparison with
This makes it easier for both retailers and institutions to participate in the process and receive rewards. The current alpha for getting the best staking rewards is to find validators who are increasing their rewards through the maximum extracted value (MEV) method. This can be done programmatically, such as the Flashbots MEV-Boost product, or via private MEV methods.
Validators using MEV currently have yields above vanilla’s 4.6% APY offered by staking.For example, using Lido MEV to raise APY up to 5.5%. The graph below shows how Lido stakers have benefited greatly from moving to the PoS consensus chain.
Lido is not the only group to benefit from increased staking rewards.a Recent Roundup Analyzing Block Rewards Last week’s study, authored by Elias Simos, found that validators who boosted their rewards using any of several MEV methods were on average twice as likely as validators who proposed blocks without using it. It is indicated that you will receive a reward.
These differences in staker block rewards and yields are likely to diminish over time as more validators adopt MEV boost blocks to receive higher rewards. Rewards are likely to be reduced, but when staking with a validator using MEV, the staker should benefit her APY.
In the short term, the global economy and geopolitical outlook make all risk-on assets look rather volatile, but it’s an exciting time for Ethereum fans. The merger is an incredible feat and demonstrates the extraordinary skill of the developers contributing to the code and vision of Ethereum.
Additionally, ETH stakers see higher APY as validators incorporate other revenue streams into the rewards they pay to stakers. Finally, we have yet to see the full potential of what a reduction in ETH supply might actually mean. If activity starts picking up again on the mainnet and gas prices start to rise, ETH could go into deflation. These scarcity shocks can bring new dynamics to the market and cause the price of ETH to rise rapidly.
