Ethereum staking on the rise, hurts passive income opportunities for HODLs

• Ethereum worth more than $2 billion is currently deposited on the ETH blockchain, as the staked pool gets larger, yields are spread thin. 
• The surging popularity of Ethereum staking is hurting earning opportunities for stakers. 
• Ethereum staking yield is currently on par with 10-year US Treasury note yield that topped 4.2% in 2022. 

Ethereum staking yield is calculated with the volume of ETH tokens staked as the denominator. This has resulted in a reduction in passive income generated for stakers as the volume of Ethereum staked climbs to 14 million. Analysts believe the spike in volume of staked ETH is bullish for the altcoin’s price.

Also read: Ethereum dominance over Bitcoin draws to close, no more flippening?

Ethereum staked surges 7.5% quarter-on-quarter

Ethereum’s successful transition from a proof-of-work to a proof-of-stake cryptocurrency consensus mechanism fueled a bullish sentiment among holders. The Merge’s completion resulted in higher confidence among holders and traders in the community and a large volume of Ethereum was staked. 

Ethereum worth $2 billion has been staked so far, a 7.5% growth from last quarter. Based on current data from crypto intelligence platform Dune Analytics, upwards of 14 million ETH tokens have been staked on the Ethereum blockchain. 

Among ways of generating passive income, staking gained popularity post the Merge. Even for Ethereum holders, the concept of staking became relevant since it has a direct impact on the supply-price dynamics of the altcoin. Staking is expected to create deflationary pressure on Ether, as opposed to mining.  

Moreover, the increase in the total volume of ETH locked in Ethereum contracts could push the altcoin’s price up in the long term since supply is one of the fundamental factors in price determination. 

Post Merge,  the relevance increased as holders joined the network as validators, staking 32 ETH, worth approximately $50,600 on the blockchain. The catch here is that the higher the volume of ETH staked, lower the yield. 

Staked Ethereum’s yield is determined by

• Gross Issuance 
• Transaction fees generated per day 
• Burn rate 
• Amount of ETH being staked

Annualized staking yield is calculated as: Annual gross ETH issuance + Annual fees * (1-% of fees burned) /Average ETH staked over the year.

Since average ETH staked over the year is in the denominator, volume of ETH staked and yield have an inverse relationship. This implies, the higher the volume of Ethereum staked, the lower the yield. Ethereum staking yield is currently on par with 10-year US Treasury note. The highest yield of the 10-year US Treasury Note in 2022 is 4.2%. 

Ethereum-based passive income opportunities

While staking yield is being spread thin by large number of interested participants and higher volume of ETH staked, there are other opportunities in Ethereum for passive income generation. Automated trading, or trading in Ethereum through a software program that uses a pre-programmed algorithm to buy/sell the asset 24x7 is an interesting opportunity for traders. 

Based on data from crypto intelligence platform Santiment, Ethereum price volatility recently hit a monthly high above 50% as the altcoin gainednearly 21% in two weeks. Therefore, automated trading remains a lucrative method to generate passive income from ETH. 

Alternatively, lending Ethereum is another popular way for traders to generate passive income. Typically, investors make a profit by lending crypto to borrowers who are willing to pay high interest rates, through centralized or decentralized lending platforms.

On centralized platforms, technicalities like security, data storage, bandwidth usage or authentication are taken care of and investors have the potential to optimize their assets’ yield. Centralized platforms usually have higher interest rates than the decentralized counterparts, however the risk of hacks and data breach is real among DeFi protocols. 

Analysts await confirmation of a bullish breakout in Ethereum price

RektCapital, crypto trader and analyst evaluated the ETH/USD price chart and noted that Ethereum price is still challenging the  resistance level of $1,587. A close above this level would be a good sign for a breakout in Ethereum. However, until that confirmation is in, Ethereum price could reject $1,587 and dip into local support between $1,300 and $1,450. 

ETH/USD price chart

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