50% of the time has passed and the progress bar is 20%. Can Ethereum 2.0 be launched as scheduled?

Source: InfStones

Ethereum 2.0 staking progress (as of November 16)

In the early morning of November 5th, Beijing time, the Ethereum 2.0 deposit contract was officially launched, catching many practitioners who were paying attention to the progress of Ethereum 2.0 off guard.

According to the design of Ethereum 2.0, 524,288 ETH needs to be deposited in the deposit contract before the Ethereum 2.0 mainnet can be officially launched; and according to the time plan, only if the above pledge amount is reached before November 24 (7 days before December 1), can the mainnet be launched as scheduled on December 1.

Compared to the grand occasion of staking 700,000 ETH on the testnet (see ETH2.0, which has been repeatedly delayed, is finally approaching), the real coin holders on the mainnet are much more cautious. At present, half of the time has passed, and the staking progress bar has only reached less than 20%, which makes us wonder: Can the Ethereum 2.0 mainnet be launched as scheduled?

Concerns of coin holders: threshold, lock-up, and income

Faced with the sudden release of the deposit contract, the market was not fully prepared. Many media have summarized the list of service providers that have made more noises in the market, but only a few have actually released usable products, and most of them are still in the testing stage; and those service providers that focus on non-custodial, decentralized, and secure services, there are no truly open source ones. Obviously, the sudden launch of the Ethereum 2.0 mainnet caught many service providers off guard, and they were not fully prepared for products and services, which makes it still a very high threshold for ETH holders to participate in Ethereum 2.0 staking.

The most mature "staking service" seen so far: the official beacon chain validator quick starter

https://launchpad.ethereum.org/

Suitable for hardcore players who want to build their own nodes, run nodes through the launcher and register validators.

Another problem is that the biggest concern for coin holders is the extremely long and uncertain lock-up period, which is expected to be about 1 to 2 years. For details on the lock-up period, please refer to the previous article "Are you willing to lock up 32 ETH until two years later? What new opportunities will the long "lock-up period" bring?" Under such a lock-up period, whether we understand and design Ethereum 2.0 staking from the perspective of mining, staking, or financial products, we cannot get a product or service model that is generally acceptable to the public, which forms an extremely high threshold that prevents more people from participating.

Third, there is also great uncertainty about the actual staking yield of ETH2.0. In the early stage of the mainnet launch, with a staking amount of 520,000 ETH, the corresponding yield can indeed reach an annualized rate of more than 20%, but as the staking amount gradually increases, the yield will gradually decrease. At this time, there is a very embarrassing problem: when the actual yield is lower than the expected yield when the pledger decides to enter the market, the pledger wants to leave but cannot leave. Therefore, even if the current annualized yield of 21.6% is very tempting for many coin holders, being a "wait and see party" may be the best choice at present. On the other hand, although the popular DeFi this year has cooled down, whether there will be extremely high-yield Ethereum projects in the 1~2 years when ETH is locked is also an opportunity cost that ETH pledgers are likely to bear.

There is no good solution: sharing, liquidity, DeFi?

In response to the above thresholds, service providers in the market have proposed various solutions. As mentioned above, due to the short time, it is difficult to see mature and practical solutions, so at present we can only summarize the external PR news and some research of various companies. At present, the efforts of service providers can be divided into three main directions:

• Staking, that is, solving the problem of users with less than 32 ETH participating in staking

• Liquidity, that is, solving the problem of locking up ETH liquidity for a long time

• DeFi, that is, solving the problem of not being able to participate in DeFi after ETH staking

For the sharing of shares, custodial service providers undoubtedly have great advantages. There are no technical obstacles. The only problem that needs to be solved is the trust of users in the custodian, which is not a big problem for old centralized institutions. But if you want to achieve non-custodial sharing of shares, I'm sorry, according to the author's research: it's impossible. From a technical point of view, it may be possible to realize the safekeeping of key keys by smart contracts, but due to the development progress of Ethereum 2.0, how to withdraw money with keys has not yet been realized, so it is impossible to write a program that supports decentralized sharing, withdrawals, and proportional profit sharing. If it is to be realized, it must be developed by a certain institution after the launch of Phase 2, which is not pure decentralization. Vitalik also spoke in the Ethereum community before that only in Ethereum 2.0 Phase 2 can decentralized "sharing of shares" running nodes be supported.

(If your organization or plan can indeed achieve decentralized sharing and support decentralized withdrawals in the future, please contact us^-^)

As for liquidity solutions, almost all the solutions we have seen so far are to issue mapping tokens, and we have not seen any solution that guarantees the redemption of ETH (after all, the latter is equivalent to staking one's own ETH). The so-called mapping token is actually an equity token, which includes the staked ETH principal and the right to redeem all future earnings (similar to bonds). Therefore, when Ethereum 2.0 supports withdrawals (implemented in Phase 2), whether the mapping token can really redeem the principal and earnings is the key to measuring the reliability of the mapping token.

It is foreseeable that various xETH will be seen in the market (currently known ones include BETH, rETH, aETH, QETH, etc.). The value recognition of these xETH in the short- and medium-term market is another important test for each company. Most pledgers get xETH for liquidity, so they have a strong desire to sell it in the secondary market. Whether the price of xETH can be supported to match its intrinsic value (the discount of principal + interest) as much as possible is a great test of market making ability. Due to the extremely long lock-up period of ETH, the conventional market making method that relies on arbitrageurs to smooth out the value difference may be difficult to take effect.

With the mapping token, the solution to the DeFI problem seems obvious: using xETH instead of ETH can easily participate in various DeFi. Therefore, the market competition of xETH needs to face both the secondary trading market and the DeFi market.

Can Ethereum 2.0 be launched as scheduled?

Faced with the above-mentioned problems and the fact that no perfect solutions have yet emerged, it is a wise choice for most retail coin holders to be a "wait and see" party, so it is reasonable that the current ETH pledge ratio is not high.

But the author still has great confidence that Ethereum 2.0 will be launched as scheduled.

First, because the service provider's solution is constantly maturing, the entry rate of funds in the second half will definitely be higher than that in the first half;

Second, institutional clients and whale clients are gradually entering the market. For them, a 20% risk-free annualized rate of return is very attractive. Even if the rate of return may drop below 5% as the amount of pledged assets increases, if we refer to the yield of about 3% and the pledge rate of more than 50% on EOS, we can understand the whales' tendency towards stable returns.

For the Ethereum coin holding community, it should be easy to attract 500,000 ETH to enter with a 20% yield. Once the mainnet is launched, the steps taken by early entrants will inevitably attract more entrants to step up.