“On-Chain Analysis” Ethereum 2.0 stakers are locked in floating losses

Compilation: BTX Capital

The Ethereum 2.0 upgrade is one of the most anticipated and watched events in the digital asset industry. However, with the staked ETH locked up and the market price falling by more than 75%, the vast majority of stakers’ positions are now firmly in the red.

The Ethereum 2.0 upgrade is one of the most anticipated and watched events in the digital asset industry. The transition from the current Ethereum proof-of-work consensus mechanism to proof-of-stake is a major technical and engineering feat.

Since the Beacon Chain went live in December 2022, many Ethereum investors have deposited their tokens to run validators. Each validator requires a staking of 32 ETH, which can be done through individual staking, staking pools (e.g. Lido, Rocket Pool) or exchanges.

To become a validator, investors must deposit their 32 ETH into the 2.0 contract, however, there is currently no specific date on which these tokens can be withdrawn. Nonetheless, the deposit contract has continued to flow into the token since its launch in November 2020.

The total amount of deposited Ethereum has now reached 12.98 million ETH, accounting for more than 10.9% of the circulating supply. A total of 8.02 million ETH (62%) was deposited before the market all-time high (ATH) in November 2021, while the remaining 38% of deposits occurred later.

"On-Chain Analysis" Ethereum 2.0 stakers are locked in floating losses

Ethereum 2.0 Total Staking Amount (Ethereum denominated)

At its November peak, the total value of staked ETH reached $39.7 billion, representing 263,918 network validators. However, after the all-time high, the value of collateral in 2.0 contracts fell by $25.65 billion. Despite an additional inflow of nearly 5 million ETH, the total staked value remains 65.2% below its all-time high.

"On-Chain Analysis" Ethereum 2.0 stakers are locked in floating losses

Ethereum 2.0 Total Stakes (USD denominated)

The growth rate of Ethereum 2.0 deposits has slowed markedly as the price of ETH fell below its all-time high in 2018 . Throughout 2020 and 2021, 500 to 1,000 new deposits of 32 ETH per day are common. The average weekly deposit count has now dropped to just 122 per day, the lowest level to date.

"On-Chain Analysis" Ethereum 2.0 stakers are locked in floating losses

Ethereum 2.0 new deposits (7-day moving average)

Aside from the fear and uncertainty in the wider market, another likely reason is the low profitability experienced by Ethereum stakers so far.

Since Ethereum cannot be withdrawn yet, we can calculate the value of Ethereum at the time of deposit (this is called the Realized Price). We can see that Ethereum deposits are sent to the contract at an average price of $2390.

The current spot price is $1,060, which means that the average Ethereum 2.0 staker is holding a 55% loss . If we compare this to the realized price of the entire Ethereum supply , Ethereum 2.0 stakers are currently taking 36.5% more losses compared to the normal Ethereum market .

"On-Chain Analysis" Ethereum 2.0 stakers are locked in floating losses

Realized price of Ethereum 2.0 total stake

Finally, we can see that almost all profitable deposits in Ethereum 2.0 today were made before January 2021, when Ethereum was less than $1,000. And this part is only 17% of all deposited Ethereum today, which are shown in blue in the chart below.

The current staking yield on Ethereum 2.0 is around 4.2%, and the overall price of Ethereum tokens is 55% lower than the cost base of the average staker, which may partially explain the overall slowdown in deposit activity.

An important takeaway from this research is that investors who use liquid collateral derivatives such as Lido or tradable Ethereum 2.0 tokens on exchanges are better able to hedge against downside price risk. This explains why the demand for these liquid collateralized derivatives is so high, and their ability to be used as collateral in DeFi applications.

"On-Chain Analysis" Ethereum 2.0 stakers are locked in floating losses

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/on-chain-analysis-ethereum-2-0-stakers-are-locked-in-floating-losses/
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