The launch of the energy efficient Ethereum 2.0 (Eth2) network will popularize the proof-of-stake consensus mechanism and make staking yields a more attractive source of income for both institutional and retail investors according to a new JPMorgan report.
The authors estimate that holders of staked coins on PoS blockchains are currently generating some $9 billion in revenue annually from their staked holdings.
When Ethereum completes its transition from proof-of-work (PoW) to proof-of-stake (PoS) next year, the analysts expect payouts will more-than-double to $20 billion. They project staking yields across the blockchain industry to double again to $40 billion by 2025.
The two senior analysts also compared the financial incentives with staked cryptocurrencie to cash, cash equivalents, and fixed income instruments like U.S. Treasury bonds:
“Yield earned through staking can mitigate the opportunity cost of owning cryptocurrencies versus other investments in other asset classes such as US dollars, US Treasuries, or money market funds in which investments generate some positive nominal yield. In fact, in the current zero rate environment, we see the yields as an incentive to invest.”
Among the top ten cryptocurrencies by staked capitalization, annual staking rewards range from the 3% range to as high as 13%, according to StakingRewards. Although these are nominal yields, and their real ROIs are also a function of the market exchange value of the underlying currency.
The JP Morgan analysts find the positive real yields of PoS coins, in addition to any expected market price appreciation attractive, writing:
“Not only does staking lower the opportunity cost of holding cryptocurrencies versus other asset classes, but in many cases cryptocurrencies pay a significant nominal and real yield.”
Proof-of-stake coins aren’t the only cryptocurrencies getting serious treatment from JPMorgan. The financial services giant is reportedly preparing to offer select clients a Bitcoin fund. It could launch as soon as this summer.
This new crypto product may also be actively-managed, in contrast to similar passive Bitcoin funds offered by Pantera Capital and Galaxy Digital.