Multi-dimensional analysis of the Staking blue ocean track in the eyes of JPMorgan Chase

This article is reproduced from The Way of DeFi, author: Overnight Porridge, reproduced with authorization

Careful friends will find that traditional financial companies have recently begun to blow up Proof-of-Stake (PoS) assets and Staking pledge services in the Crypto field.

It's no secret that Wall Street/central banking institutions generally don't like energy-intensive Proof-of-Work (PoW) cryptocurrencies, especially Bitcoin, and even tech nerds like Elon Musk have previously slammed Over Bitcoin's energy consumption problem.

What about more energy-efficient proof-of-stake (PoS) assets like Polkadot, Tezos, Cosmos, and the much-talked-about Ethereum 2.0? When it comes to the subfield of PoS, you will find that the attitudes of these traditional institutions are quite different.

Recently, there are two pieces of news that everyone needs to pay attention to. One is the Staking report released by JPMorgan Chase, and the other is that some banks have started to provide Staking services.

It is reported that JP Morgan (JP Morgan) analysts Ken Worthingon and Samantha Trent pointed out the biggest growth opportunity in the Crypto field in a long primer on Staking, which concluded that:

“As Bitcoin and Ethereum gain popularity, staking will become a source of income for both institutional and retail investors and will gain traction.”

Today, the Swiss bank Sygnum also announced that it has provided Ethereum 2.0 pledge services for customers, becoming the first banking institution in the world to do so.

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1 What are Proof of Stake (PoS) and Staking?

Here is a brief science for new readers: Currently, the Bitcoin and Ethereum blockchains use a consensus mechanism called Proof of Work (PoW) to ensure that all transactions on the network are valid and that the distributed records of the network are accurate. correct. It is this proof-of-work (PoW) process that has led to criticism of Bitcoin and various cryptocurrencies because they require energy-inefficient "mining machine" equipment to maintain the system, which results in a large amount of energy consumption. .

In order to create a more scalable and energy-efficient system, Ethereum plans to shift from proof-of-work (PoW) to proof-of-stake (PoS). This transformation has naturally won the support of many people. A variety of DeFi, NFT and other gameplays make the story of Ethereum more imaginative. No, Goldman Sachs recently called Ethereum an "Amazon of information" in a lengthy report, praising Ethereum as the next behemoth in the crypto field.

Regardless of whether these institutions are right or wrong, we can confirm that the transfer of Ethereum to PoS has attracted global attention.

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(Note: The picture comes from the JPMorgan Chase report)

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(Note: The picture comes from the JPMorgan Chase report)

As for the so-called staking, we can simply understand that the user pledges the original asset in the relevant contract and locks it for a period of time, and then can obtain a stable return on the original asset, which is very similar to the user depositing in the bank and earning interest.

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(data from https://staked.us/)

Analysts predict that staking will become a growing source of revenue for cryptocurrency intermediaries such as Coinbase, especially after Ethereum 2.0 is fully implemented. JPMorgan Chase estimates that staking will bring 200 million yuan to Coinbase in 2022 USD revenue opportunity, a nearly 20-fold increase from 2020’s $10.4 million.

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2 Competition in the Staking Blue Ocean Market: Centralization VS Decentralization

Obviously, Staking has become a blue ocean market in the eyes of major institutions, so who are the current competitors in this market, and what is the situation like?

For the sake of simplicity, here we use the data of Ethereum 2.0 as a representative to answer this question.

Before the analysis, we roughly divide Staking services into three categories, (1) Centralized Staking services, (2) Semi-decentralized Staking services, (3) Decentralized Staking services.

The so-called centralized service means that the user entrusts the encrypted assets to a third-party organization, and the professional organization personnel operate the pledge service (generally a part of the handling fee will be charged as remuneration). For example, Coinbase mentioned above is a Common example.

The semi-decentralized staking service is to hand over the entrustment of encrypted assets to third-party nodes. After the nodes generate income on their behalf, they are distributed to users on the chain, and users still have the ownership of encrypted assets.

For example, the following is a general description of the components of the Lido Staking protocol:

1. Staking Pool: a protocol for managing deposits, staking rewards, and withdrawals;

a. Node operator registry

b. Withdrawal certificate

c. Oracle

2. stETH: liquid pledge token, which maintains a 1:1 balance with the beacon chain ETH pledged by users;

3. DAO: Aragon DAO that controls protocol parameters;

The Staking Pool here is the core of the entire Lido smart contract, which is responsible for 5 things: (1) ETH deposit and withdrawal, (2) minting and burning stETH tokens, (3) entrusting funds to node operators, (4) ) Distribute staking rewards, (5) Accept oracle machine data updates.

Users send ETH to the Lido Staking pool, and then stETH can be minted 1:1, and the deposited ETH will be distributed among node operators to maintain an even distribution, and verified by their validators. The withdrawal certificate of ETH will be set as the threshold signature of distributed custody to prevent the possibility of a single point of evil.

The last decentralized staking service, the representative project is Rocket Pool. The Rocket Pool platform allows anyone with more than 0.01 ETH to participate in Staking pledges, and provides 1:1 rETH tokens for pledgers. Unlike Lido, Rocket Pool's node operators are open (at least the threshold is very low), and it only takes 16 ETH to run a node. Yes, compared to the 32 ETH required to run an Ethereum 2.0 node, Rocket Pool is more suitable for small node operators. Yan is very friendly.

How to choose these services? The following is some data organized by defirate:

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(Note: The data comes from etherscan)

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The above data shows that centralized services still occupy a dominant position in the Staking market, but it cannot be ignored that semi-decentralized Staking services represented by Lido are also very eye-catching. In addition, because the latter provides flexible Liquidity is expected to occupy more market share in the future.

Unfortunately, the current performance of decentralized Staking services (such as Rocket Pool) has not yet attracted people's attention, which is somewhat similar to the development of the stablecoin track.

References: 1. https://blog.lido.fi/how-lido-works/

2、https://defirate.com/staking/

3、https://bi.etherscan.io/public/dashboards/KH9jbP687szqlAnHiNEfNictrwNhvdOEQl0PwB6m?org_slug=default