Stake Providers May Expand Institutional Presence in the Crypto Space: Report

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The carbon footprint of the Ethereum blockchain is expected to decrease by 99% after last week’s Merge event. Positioning staking as a service for retail and institutional investors, the upgrade could also have a significant impact on the crypto economy, according to a report from Bitwise on Tuesday.

The company said it expects potential gains of 4%-8% for long-term investors via Ether (ETH) staking, while analysts at JP Morgan predict betting revenues across PoS blockchains could double to $40 billion by 2025.

Users who wager crypto assets earn rewards – also known as returns – from transaction fees paid by other network users. Seen by some as a form of passive income generation, staking requires users to lock their assets into a smart contract, during which time coins cannot be issued or traded in the market. This can be one of the biggest challenges for the adoption of PoS blockchains, especially by institutional investors.

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In a Q2 earnings call, Coinbase CEO Alesia Haas noted that institutional staking of crypto assets could be a “phenomenon” in the future once the market overcomes its liquidity block.

Industry players have proposed a number of solutions to address this lack of liquidity around coin bets. On Sunday, Alluvial announced a liquid collective enterprise and multichain protocol with Coinbase and Kraken as integrators and Staked, Coinbase Cloud and Figment as validators. The solution aims to provide institutional holders with a viable liquid deployment solution.

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“Proof of Stake blockchains make up more than half of the total crypto market capitalization, but there has been no viable option for institutional token holders to participate in liquid staking,” Alluvial CEO Matt Leisinger said in a statement.

Ahead of the merger, Swiss digital asset banking platform SEBA Bank launched an Ethereum stakeout service for institutions eager to earn returns by staking on the Ethereum network. The company said the move was in response to growing institutional demand for decentralized financial (DeFi) services.

“Investors not only dive into staking first, but they are also leveraging liquid staking services and DeFi’s compounding to amplify the APY and utility of assets they’re already deploying,” the authors of a Bitwise report said.

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The ability to evict could also create further centralization problems for the community. Hours after completing the upgrade, Santiment’s analysis found that 46.15% of Ethereum’s PoS nodes are operated by just two addresses from Lido and Coinbase, which have 30.8% and 14.7% market share of the market, respectively. $13.2 billion in ETH as of August 31.

As more providers enter the market, not only will institutional holders benefit, but risks can be diversified and network resilience can improve, according to Bitwise’s analysis.