Venture providers may expand institutional presence in crypto space: Report

The Ethereum blockchain’s carbon footprint is expected to decrease by 99% after last week’s Merge event. By positioning efforts as a service for private and institutional investors, the upgrade could also have a significant impact on the crypto economy, according to a report from Bitwise on Tuesday.

The company said it projects potential gains of 4-8% for long-term investors through Ether (ETH) staking, while JP Morgan analysts predicted that staking returns across PoS blockchains could double to $40 billion by 2025.

Users who stake cryptoassets earn rewards – known as returns – from transaction fees paid by other network users. Seen by some as a form of passive monetization, staking requires users to lock their assets in a smart contract, during which time coins cannot be spent or traded on the market. This may be one of the main challenges to the adoption of PoS blockchains, especially by institutional investors.

In a Q2 earnings call, Coinbase CEO Alesia Haas noted that institutional betting of crypto assets could be a “phenomenon” in the future once the market overcomes the liquidity lock.

Industry players have proposed a number of solutions in an attempt to address this lack of liquidity around staked coins. On Sunday, Alluvial announced a floating collective enterprise and multi-chain protocol with Coinbase and Kraken as integrators and Staked, Coinbase Cloud and Figment as validators. The solution aims to provide institutional holders with a viable liquid investment solution.

“Proof of Stake blockchains account for more than half of the entire crypto market capitalization, but it has not been a viable option for institutional token holders to participate in floating stakes,” said Matt Leisinger, CEO of Alluvial in a statement.

Ahead of the merger, Swiss digital asset banking platform SEBA Bank launched an Ethereum staking service for institutions eager to earn returns from staking on the Ethereum network. According to the firm, the move was a response to the growing institutional demand for decentralized financial services (DeFi).

“Not only are investors diving head first into staking, but they are leveraging liquid staking services and the composition of DeFi to amplify the APY and utility of assets they are already staking,” said the authors of a Bitwise report.

The possibility of effort may bring further centralization issues to society as well. Hours after the upgrade was completed, analysis by Santiment indicated that 46.15% of Ethereum’s PoS nodes are controlled by just two addresses belonging to Lido and Coinbase, which hold 30.8% and 14.7% market share of ETH’s 13, respectively. $2 billion as of August 31.

As more staking providers enter the market, not only will institutional holders benefit, but risk can also be diversified and network resilience can improve, according to Bitwise analysis.