CRYPTO MOVERS AND PRICES
Crypto was selling off across the board this morning. Volume on the move is well below previous days’ elevated levels.
Crypto Story of the Day
On Monday, Ethereum (ETH) made new all-time highs, surpassing its December 2017 record: this move comes with ETH staked in the ETH 2.0 Staking Contract surpassing 2 million over the weekend. Staked ETH is locked into the contract until Ethereum’s Phase 1.5 is launched, slated for 2022.
In November, the ETH 2.0 Deposit Contract triggered the launch of the Beacon Chain once a predefined balance of 524,288 ETH was reached. Since that launch, considered the start of Phase 0 of ETH 2.0, holders of the token have continued to stake into the contract. Those staking ETH are acting as validators for a limited set of basic operations on the Beacon Chain. In return, validators receive awards in the form of ETH. These rewards, along with the staked ETH, remain locked on the Beacon Chain and cannot be withdrawn or transferred.
While staking requires a minimum of 32 ETH, a number of exchanges, including Bitfinex, Kraken, and Coinbase, have launched staking services that allow users to participate in staking with less than the 32 ETH minimum. Coinbase and Kraken have indicated that the venues will activate trading between ETH and staked ETH locked on the Beacon Chain, referred to as ETH2. Bitfinex hasn’t committed to launching ETH2 markets, noting that the venue “makes no guarantee that it will continue to permit trading of ETH2 against Fiat or Digital Tokens.”
Kraken has indicated that ETH2 trading won’t be available to residents of Canada and the U.S., and Bitfinex isn’t offering the staking service to residents of Canada, either (here, it’s important to note that the venue doesn’t allow U.S. residents to access any of its services). Bitfinex also explains that traders should expect ETH2 to trade at a “discount to ETH, including because ETH2 is inherently risky, cannot be withdrawn from the Site, and users will be able to obtain one ETH2 by staking one ETH.”
Kraken and Bitfinex warn that staking ETH should only be considered by long-term holders, as their unlocking will only be possible if/when Phase 1.5 launches. Bitfinex describes Beacon Chain as “highly experimental” and warns that “as a result ETH2 is risky.” While Coinbase didn’t specify estimates for staking rewards, Kraken put rewards at 5-17% annualized and Bitfinex at 10%.
When the launch of Beacon Chain was triggered, we described Ethereum’s upcoming technical upgrade as a “precarious moment.” Considering the delays the network’s technical roadmap has experienced thus far, participants in staking have locked their ETH in a long position with an unclear settlement date, likely years away. As a result, ETH touching previous record highs along with the Deposit Contract surpassing 2 million ETH (about 1.75% of the total supply) could present yet another risk in the PoW to PoS transition.
Moreover, it isn’t clear when ETH2 trading services will launch on trading venues, creating a means to exit long positions in the form of staking. In the meantime, those locked funds are exposed to the significant regulatory and technical risks that we’ve discussed in the past and could serve as another voice of pressure to rush developers through their roadmaps.