JPMorgan Chase: Ethereum Will Lead the $40 Billion Staking Industry
image description
Above: Jamie Dimon, president and CEO of JPMorgan Chase & Co.
Written by: Emily Mason
Facing cryptocurrency skeptics, JPMorgan CEO Jamie Dimon said in a report last week that as other blockchain networks that are more energy-efficient than Bitcoin gain popularity, A new way of earning money called “staking” is gaining popularity and will become a source of income for both institutional and retail investors.
Currently, the Bitcoin and Ethereum blockchains use an energy-demanding (i.e. mining) process called PoW (Proof of Work) to ensure that all transactions on the network are valid and that the distributed records of the network are accurate of. In order to create a more scalable and energy-efficient system, many blockchain development teams, including Ethereum, the pioneer of the DeFi movement, are moving from PoW to PoS (Proof of Stake), where investors lock (stake) their funds in a blockchain. on the blockchain in exchange for rewards.
According to a report by JPMorgan Chase, the current Staking mechanism brings about $9 billion in revenue to the encryption industry every year. The report predicts that this figure could increase to $20 billion following Ethereum’s move to PoS. The report concludes by predicting that total staking returns will reach $40 billion by 2025.
“Not only does staking reduce the opportunity cost of holding cryptocurrencies relative to other asset classes, but in many cases the nominal and real returns on cryptocurrencies are high,” the report said.
According to stakingrewards.com, staking cryptocurrencies such as SOL or BNB can currently earn anywhere from 4% to as high as 10% per annum. For example, Gemini, the Winklevoss brothers’ cryptocurrency exchange, is currently offering investors the opportunity to earn up to 7.4% annualized returns on staking their cryptocurrency balances on the Gemini platform. The report also stated that as the volatility of cryptocurrencies decreases, the ability to earn positive real returns will be an important factor in helping the crypto market become more mainstream.
The authors of the report predict that staking will become a growing source of revenue for cryptocurrency intermediaries such as Coinbase, especially after Ethereum 2.0 is scheduled to be completed in 2022. The report estimates that staking will represent a $200 million revenue opportunity for Coinbase in 2022, up from $10.4 million in 2020.
Since 2018, JPMorgan has been involved in the cryptocurrency market through its in-house team Blockchain Center of Excellence. In 2019, JPMorgan Chase launched JPMCoin, a stablecoin anchored to the US dollar. In March, JPMorgan even started offering clients exposure to Bitcoin.
The report states: “Income from staking can reduce the opportunity cost of holding cryptocurrencies relative to investments in other asset classes, such as U.S. dollars, U.S. Treasury bonds, or money market funds, which generate some positive notional returns. rate...in fact, in the current zero rate environment, we see that yield as an investment incentive."
According to the report, the current market capitalization of PoS tokens exceeds $150 billion. The authors predict that the ability to use cryptoassets to earn yield through staking will make digital assets a more attractive asset class and may help facilitate mainstream adoption of cryptocurrencies. Initially scheduled to launch in January 2020, Ethereum 2.0 is now expected to enter its final rollout in 2022.
However, the potential ability to earn consistent positive returns from staking cryptocurrencies depends on market volatility. For example, Ethereum competitor Solana allows investors to stake its native cryptocurrency SOL to earn SOL rewards. If the value of SOL performs poorly, there may not be any real gain from staking. The same is true for staking any cryptocurrency. The report said that as the crypto market matures and becomes less volatile, staking could become a more reliable source of income.
