10% of the progress was completed in 6 days, and ETH2.0 is unlikely to be launched on December 1

Information source: Twitter

Over the past three days, an average of 2,100 ETH has been staked per day. To launch on December 1, we need to stake 32,000 ETH per day from now until November 24. At the current rate, Genesis cannot be launched before June 2021. "A user called "eth2validators" on Twitter issued the above warning about the progress of ETH2.0.

Indeed, compared to the initial surge in ETH2.0 deposit contract prices and the daily staking of more than 20,000 coins, ETH2.0 staking activity has slowed down. The ETH2.0 Genesis launch period is 25 days, and 6 days have passed before ETH staking progress has reached 10%. As of the time of writing, there are 258 independent validators and 1,691 validator nodes (an independent validator may occupy multiple nodes), which is still a long way from the 16,384 validators required for the launch of 2.0.

Number of independent validators, information source: Cryptoquant

It is highly likely that the creation of ETH2.0 will not be launched on December 1, and the market's enthusiasm for ETH2.0 seems to be overestimated.

Validators are in an awkward position

If we observe carefully, we will find that many people around us are talking about ETH2.0, but only a few actually do staking and become validators. What everyone really participates in is the ETH secondary market transactions. In fact, Chinese people are very sensitive to investment. The fact that Chinese people are not competing to participate in ETH2.0 staking indirectly shows that becoming a validator of the 2.0 network is not so profitable.

User @DegenSpartan wrote on Twitter, "I really think that unless you are rich, tech-savvy, and very passionate about the ETH2.0 story, you should not participate in the staking and verification of Ethereum Phase 0." As this netizen suggested, user participation in ETH2.0 is indeed relatively low. As of writing, a total of more than 54,000 ETH has been staked in the deposit contract, which is only 10% of the launch standard. In addition, most of the staked ETH comes from whales.

According to Beaconcha.io, the top ten whales have staked 31,840 ETH, accounting for more than half of the total stake. In particular, a whale with the address "0xbb84d966c09264ce9a2104a4a20bb378369986db" has staked 12,800 ETH on its own, raising the overall stake level. In other words, the market's participation and progress in Phase 0 staking are actually lower and slower than what everyone sees.

The top ten whales’ staking situation, information source: Beaconcha.io

The reason behind this may be related to the cost that the validator has to pay and the low rate of return.

The biggest obstacle for validators comes from the lock-up period of at least 1-2 years. The ETH staked by validators and the rewards obtained through staking will not be unlocked until Phase 1, which takes at least 1-2 years. For users, this means sacrificing long-term ETH liquidity to bet on the progress and transformation of Ethereum in 2 years.

On the one hand, many industry participants believe that the market has entered a bull market cycle, and long-term lock-up of more than 32 ETH means that this part of the funds is excluded from the threshold of new investment opportunities. On the other hand, after the start of Phase 1, the locked ETH may form a large selling pressure. Validators prop up the ETH price bubble by locking positions, but once the lock-up period is over, if validators want to exit, they may not be able to find a high price to exit immediately.

The Ethereum network also lacks incentives for validators. The annualized return on users' staking ETH has been declining as the amount of ETH staked in the network has increased. When the amount of ETH staked reaches the threshold for the creation of ETH2.0 - 524,288 ETH, the annualized return on staking is 21.6%. When the amount of staked ETH reaches 10 million ETH, the annualized return is 4.9%.

Source: Eth2 Launch Pad

Compared with general cryptocurrency investment methods, the profits that ETH2.0 network validators can obtain are not enough to attract cryptocurrency users.

Take this year as an example. If we simply hold BTC and ETH, the yields can reach 74% and 151% respectively in less than a year. If we mine ETH1.0 in PoW mode, the mining income in September this year can reach 6 times that of BTC. If we are more aggressive, the short-term yield of liquidity mining projects this year is dozens or hundreds of times, which is not an isolated case. In contrast, the highest yield of staking ETH in ETH2.0 is only 21.6%.

Even if they have become validators, they don’t really care about ETH2.0 and face some penalty mechanisms. For example, @wslyvh tweeted, “To be honest, I haven’t been actively monitoring my nodes. My biggest losses come from network instability and vulnerabilities, which is why we need a testnet, but I think many people will soon suffer losses in staking.”

The ETH2.0 network will deduct tokens from validators if they are offline or committing malicious acts. If the staked amount drops below 32 ETH due to token deductions, the validator will be "persuaded to quit". Overall, the participation rate of ETH2.0 is still relatively low due to the long lock-up period and low yield rate.

Who will be the validator?

According to Beaconcha.io, as of the time of writing, there are 258 independent validators who have staked 32 or more ETH in the deposit contract, which is still far from the starting standard of 16,384. Although the participation rate is not high, there are indeed some users participating. So who are these validators mainly from?

Bibi News learned through WeChat Moments that the Pomegranate Mining Pool is about to start mining ETH2.0. In the opinion of Li Bai, the core developer of the mining pool, the current ETH2.0 validators are mainly foreign participants, mainly developers and capital parties in the original Ethereum ecosystem.

The motivation for some validators to participate is as follows: they have some long-term ETH and do not plan to sell it in the next one or two years. In addition, they have the technical ability to deploy validator nodes, so they will put these coins into Staking to earn an annualized rate of return of up to 20%.

Of course, there are also some loyal supporters of Ethereum among the validators, such as the whale with the address "0xbb84d966c09264ce9a2104a4a20bb378369986db" mentioned above.

As of the time of writing, this whale has staked 12,800 ETH, equivalent to about $5.888 million. According to the Hot Wheels community, this whale did not "ship" when the ETH price reached a high level, nor did he/she participate in any profit-making activities (such as staking to collect interest), and now he/she has resolutely rushed into ETH2.0. "ETH2.0 is too complicated and difficult for domestic novice users to understand, so it is difficult to exchange for investment enthusiasm."

The technical implementation and progress of ETH2.0 are relatively complex, which is beyond the scope of what many domestic users are willing to patiently understand. In addition, the Staking income is not high enough to attract users' attention, so the domestic participation in staking is still very low. Users are mainly active in the secondary market, and ETH2.0 staking is still a "blue ocean market."

However, it is worth noting that some actions from third parties such as exchanges and wallets are currently lowering the threshold for retail investors to participate. Take BiKi as an example. BiKi launched ETH2.0 verification node mining on November 9. Users can exchange 1 ETH for 1.01 BETH. The mining income of the platform will be distributed to the user account according to the proportion of BETH subscription. In addition, the platform has also opened the BETH/ETH trading pair, and the shares participating in the pledge can be withdrawn at any time.

What the trading platform is doing is actually resolving the staking threshold of 32 ETH, releasing the liquidity of the staked tokens, and the users' staked rights are also given trading attributes.

In addition to BiKi, third parties including Whale Exchange, WBF, TokenPocket, Ankr, BLOX, Rocket Protocol, etc. will also launch or have already launched “group order” mining services. Platforms including FTX are proposing plans to release the liquidity of pledged tokens.

The emergence of these third-party services may become a critical point, radiating the scope of stakeholders to more retail investors, thereby promoting the progress of ETH2.0 more quickly. As for whether this will give rise to many "big" nodes and lead to the centralization of the Ethereum network, given that the launch standard of ETH2.0 Genesis is to reach 16,384 validator nodes, the number of validators is sufficiently dispersed, so this concern can be temporarily eliminated.

Although the launch of ETH2.0 was met with a cold reception, it was also revealed today that the infrastructure Infura was suspended due to an "unannounced hard fork upgrade", affecting many exchanges and wallet platforms; although the PoS and sharding technologies that Ethereum relies on to improve performance have been practiced and even implemented on other blockchains, and have not achieved good results...

But as Li Bai said, "Oranges grown in the south of the Huai River are oranges, while oranges grown in the north of the Huai River are tangerines." Ethereum's user base, application ecology, developer capabilities, and reputation accumulated over the years may bring about a wonderful market reaction, and staking ETH to become a validator of the ETH2.0 network is a bet on the future of ETH2.0.

Note: The above content is not intended as investment advice. Bibi News hereby reminds users to pay attention to investment risks.