Why it will boom in 2023

Crypto is experiencing a painful bear market. One area of ​​growth: liquid staking on Ethereum. It should boom next year. Because the second largest blockchain is planning an important update that will remove current uncertainties in staking. It’s called Shanghai and is scheduled to be rolled out in March 2023.

Ethereum has been running on the Proof of Stake consensus algorithm (PoS for short) since the merge update in September 2022. The multi-billion dollar network secures itself through validators and their deposits in ether, the stake. These in turn receive Ethereum in return for their service. Up to four percent of interest can be earned in this way.

Shanghai update as an opportunity for liquid staking

But currently only around 17 percent of all ETH coins in circulation are being staked. The problem: Once stored, Ethereum cannot currently be de-staked again. For many investors, this poses too great a risk. With Shanghai you should finally be able to withdraw your coins.

So-called liquid staking providers should benefit the most. They act as a pool that investors put their coins into. These are stacked together. Because: To become active as a validator, you need at least 32 ETH, the equivalent of several thousand US dollars. With a liquid staking provider, on the other hand, you can get started with smaller amounts – for a small fee.

More competition and choice for users

The first and largest of these service providers is currently Lido, with over 75 percent of the market share. This concentration has caused controversy in the past. Some see the decentralization of the network in danger. While Lido still reigns supreme, it faces increasing challenge from smaller protocols like Rocket Pool, StakeWise, and Swell that offer product improvements.

Rocket Pool, for example, offers increased protection against so-called slashing, where rewards are withheld – due to insincere behavior. And due to a different mechanism, not so much of the profit has to be taxed. One downside: you need 16 ETH to start staking. The entry fee will soon be reduced to 8 ETH.