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WASHINGTON, DC – JUNE 13: Jamie Dimon, President and CEO of JPMorgan Chase Co., arrives on Capitol Hill to testify… [+] before the Senate Banking Committee on June 13, 2012 in Washington, DC. Mr. Dimon is testifying before the committee on how JP Morgan Chase lost over two billion dollars in stock market trades. (Photo courtesy of Getty Images/Mark Wilson)
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In a study released this week, two senior analysts at J.P. Morgan suggested that as blockchains with more energy-efficient networks than bitcoin and ethereum gain acceptance, a new technique to make money known as staking will gain traction as a source of revenue for institutional and retail investors alike. To ensure that all transactions on the network are genuine and that the network’s distributed record is correct, the bitcoin and ethereum blockchains now use proof-of-work, an energy-intensive procedure. Blockchain development teams, including the parent of the decentralized financial movement, ethereum, are converting from proof-of-work to proof-of-stake, where investors lock up their cash on the blockchain in exchange for rewards, in order to create a more scalable and energy-efficient system.
Staking generates an estimated $9 billion in revenue for the crypto business each year, according to the analysis. The authors believe that with the launch of the long-awaited Ethereum 2.0 next year, the switch to proof-of-stake will spur adoption of the alternative consensus mechanism, with staking payouts reaching $20 billion in the quarters following the launch of Ethereum 2.0 and $40 billion by 2025.
“Not only does staking reduce the opportunity cost of owning cryptocurrencies compared to traditional asset classes, but cryptocurrencies often pay a considerable nominal and real yield,” according to the paper. According to data from stakingrewards.com, staking cryptocurrencies like as SOL or BNB may currently earn yields ranging from 4% to 10% annually. For example, the Winklevoss crypto exchange Gemini is currently offering investors the option to earn annual dividends of up to 7.4 percent on their cryptocurrency holdings. According to the paper, as the volatility of cryptocurrencies decreases, the capacity to produce a positive actual return will become more significant in assisting the market’s mainstreaming.
Staking, according to the report’s authors, would become an increasing source of revenue for cryptocurrency intermediaries like Coinbase, especially after Ethereum 2.0 is completed in 2022. According to the research, staking will bring Coinbase $200 million in income in 2022, up from $10.4 million in 2020.
ADDITIONAL INFORMATION FOR YOU
J.P. Morgan’s Blockchain Center of Excellence has been dabbling in the crypto market since 2018. JPMCoin, the bank’s own stablecoin that represents the US dollar, was launched in 2019. J.P. Morgan started giving bitcoin exposure to clients in March.
The paper states that “yield earned through staking can minimize the opportunity cost of owning cryptocurrencies over other investments in other asset classes like as US dollars, US Treasuries, or money market funds in which investments offer some positive nominal yield.” “In fact, we see the rates as an inducement to invest in the current zero-rate environment.”
According to the analysis, the current market capitalization of proof-of-stake tokens is over $150 billion. The possibility to receive yield from crypto assets through staking, according to the authors, will make digital assets more appealing as an asset class and may help to promote mainstream use of cryptocurrencies. Ethereum 2.0 was planned to launch in January 2020, however it will now begin its final launch phase in 2022.
The capacity to make a constant positive yield by staking bitcoins, on the other hand, is contingent on market volatility. For example, ethereum competitor Solana allows investors to earn SOL incentives in exchange for their native SOL coin, which is presently valued at $32.76. There would be no meaningful gains if the SOL token’s value plummeted. This is true for any cryptocurrency that requires staking. Staking will likely become a more predictable source of earnings as the crypto market matures and volatility lessens.
The paper also raises the issue of inflation, which is inherent in any system that mints new tokens on a regular basis. If there are no tight inflation-control mechanisms in place, the value of a single token will dwindle as more people engage in a staking system, and individuals would be rewarded less. Using the SOL example from earlier, the Solana development team has developed an inflation timetable aimed to alleviate these worries, as well as a 1.5 percent long-term inflation rate target./nRead More

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