Well, well, well. It finally seems like we will have our ETH Merge. September 15th is now the day that is slated for the biggest change in Ethereum’s 7-year history.
Ethereum co-founder and crypto god Vitalik Buterin has stated that the upgrade will eventually enable the network to facilitate an eye-watering 100,000 transactions per second via second-layer solutions. While most of the press has (rightly) focused on this side of things, as well as the reduction of energy consumption that will come out of moving to Proof-of-Stake from Proof-of-Work, I want to focus on a different kind of effect I foresee.
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Let’s talk about the staking yield, as the ramifications here are huge with regards to valuations.
Ethereum is the currency of Web3
Ethereum has already established itself as the burgeoning currency of DeFi and Web3. NFTs, for the most part, are priced in ETH. Decentralised apps often use ETH. Even hiring developers for work related to the space, or other freelancers, often comes via quotes and salaries paid in ETH.
Its dominance of the total value locked is well, dominant. Value locked on Ethereum currently sits at $39 billion, comprising a 58% share of all of DeFi.
And post-merge, we will now have a staking yield with Ethereum – an interest rate earned by stakers for their work in maintaining the network. My thinking is that this could establish the ETH staking yield as the “risk-free” reference rate of DeFi. Â
Valuations
I tend to look at things from a macro perspective. Not only that, but I’m a trad-fi crossover – I began in conventional finance before falling in love with the world of decentralisation. This background sometimes influences how I look at things in the space, for better or worse.
One thing I always noticed was how challenging it was to value things correctly in the DeFi…
