Ethereum is prepping for the much-anticipated Merge. Delays and setbacks aside, the total value locked in ETH 2.0 deposit contract continues to record new highs. As of July 5, the number of staking ETH 2.0 deposit contract addresses exceeds 13,000,000.
However, a vast majority of Ethereum 2.0 stakers are now firmly underwater on their position. The unprecedented declines in Ethereum’s price are to blame since the asset is down by over 75% from its peak of $4,800. As a result, 75% of stakers are currently underwater.
ETH 2.0 Stakers Underwater
Staking essentially requires crypto investors to lock up their tokens over a certain period of time. In the case of Ethereum 2.0, the ether holders are required to stake a minimum of 32 ETH to the deposit contract, which has witnessed a consistent inflow of coins. In fact, over 62% was deposited before the November 2021 market ATH, while the remaining 38% was transferred after.
During this peak, the total USD value of staked ETH climbed to a whopping $39.7 billion, accounting for 263,918 network validators. Post ATH, however, the USD value in the 2.0 contract dropped by $25.65 billion even as an additional inflow of almost 5 million ETH. The USD value of staked ETH is now more than 65% lower than it was at the ATH.
Hedging Downside Price Risk
The slow-down in ETH 2.0 deposits is also noteworthy. According to Glassnode’s latest report, there were 500-1,000 new deposits of 32 ETH per day throughout 2020 and 2021. Following the market downturn, however, the weekly average number of deposits has fallen to just 122 per day, the lowest to date. Another factor that can be attributed to the slow-down is the poor rate of profitability that ETH stakers are facing.
As per Glassnode’s data, with the spot price hovering near $1,182, ETH 2.0 stakers are, on average, holding a loss of around 55%. When this figure is compared to the Realized Price for the entire token supply, the 2.0 stakers are “currently shouldering 36.5% larger losses compared to the general Ethereum market.”
One closer look at the 2.0 deposits shows that the ones in profit were made in January 2021, when the spot price of the crypto was under $1,000. The analytic firm revealed that only 17% of the ETH deposits made it to the profit category.
According to the report, the investors who used liquid staking derivatives such as Lido or tradeable ETH 2.0 tokens on exchanges were “likely better able to hedge downside price risk,” underscoring the growing demand for these liquid staking derivatives in addition to the ability to use as collateral in decentralized finance apps.
As far as the Merge is concerned, Ethereum is one step closer to the long-awaited move to a proof-of-stake (PoS) blockchain. It recently completed a major Merge trial on the public test network Sepolia. The final trial will take place on the Goerli testnet over the next few weeks.