A year after Ethereum's transition from a proof-of-work to a proof-of-stake digital asset, staking continues to be an attractive option for Ethereum holders. The shift, known as the Merge, enabled a larger number of holders to participate in the network and earn rewards by staking their holdings.
The Q2 2023 "State of Staking" report from Kraken indicates that total staking rewards for all cryptocurrencies reached $5 billion on an annualized basis during the quarter. The top 35 proof-of-stake cryptocurrencies combine for a market cap of $288 billion, with $68 billion worth of value staked in these assets.
Staking offers the ability to generate a return while retaining assets, which is particularly appealing during a risk-off market environment. Ethereum.org reports that the current annual percentage rate (APR) for staking is 3.9%. With MEV Boost enabled, returns have ranged between 4.2% and 5.6% over the past six months.
In April 2023, the Shapella upgrade allowed Ethereum stakers to withdraw their holdings for the first time since staking began in December 2020. This removed uncertainty and boosted demand for staking. Since the upgrade, there has been a net inflow of nearly 7.5 million ETH into staking, and the percentage of the total supply of ETH that is staked has risen from 14.5% before Shapella to 22.4% today.
The number of validators has also surged post-Shapella upgrade, nearly doubling from around 430,000 validators right before the upgrade to over 840,000 today. However, this growth has led to strain on the network due to increased latency and longer waits to reach consensus.
Developers are working on solutions that would address this issue while still adhering to the principle of decentralization, such as increasing the maximum cap on the number of ETH per validator.
Upcoming upgrades that will bring lower gas fees, greater speed and account abstraction to the Ethereum network are on the horizon, further increasing Ethereum's appeal. Network participation has climbed steadily since the transition to proof-of-stake, with the number of unique Ethereum addresses increasing from approximately 205 million before the Merge to 245 million today.
With increased accessibility, improved flexibility and UX, the ability to earn rewards and the opportunity to participate in blockchains in a new and meaningful way, staking continues to empower Ethereum holders and will play a pivotal role in the future of the network.
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