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Chainalysis, a company that analyzes crypto assets, has said that the price of Ether (ETH) might not be tied to the price of other crypto assets after Merge, and that staking yields could drive strong institutional adoption.
In a report released on Wednesday, Chainalysis said that the next upgrade to Ethereum would give institutional investors staking yields similar to those of bonds and commodities, while also making Ethereum much better for the environment.
The report said that ETH staking is expected to give stakers a return of 10-15% per year. This makes ETH a "enticing bond alternative for institutional investors" because the yields on treasury bonds are much lower.
“Ether’s price could decouple from other cryptocurrencies following The Merge, as its staking rewards will make it similar to an instrument like a bond or commodity with a carry premium.”
Chainalysis data shows that the number of institutional ETH stakers, or people who have staked at least $1 million worth of ETH, has "steadily increased" from less than 200 in January 2021 to around 1,100 in August of this year.
The company says that if this number goes up more quickly after The Merge, it should prove that institutional investors "do in fact see Ethereum staking as a good way to make money."
The Chainalysis report also says that ETH will attract more retail and institutional traders after The Merge, because the upcoming upgrade will make staking a much more attractive way to invest.
At the moment, ETH that has been staked is locked up in a smart contract from which it can't be taken out until the Shanghai upgrade, which won't happen until six to twelve months after the Merge.
As a result, the staked ETH market is currently not liquid, so some staking service providers offer synthetic assets that represent the value of the staked Ether. However, "these synthetics don't always maintain a 1:1 peg," says the firm.
"The Shanghai upgrade will allow users to withdraw staked Ether whenever they want. This will give stakers more liquidity and make staking a better idea overall," the report says.
The Ethereum Foundation says that after the transition to proof-of-stake (PoS), the Ethereum blockchain will use up to 99% less energy:
“The switch to PoS will also make Ethereum more eco-friendly, which could make investors with sustainability commitments more comfortable with the asset. This especially applies to institutional investors.”
This week, ConsenSys, the organization formed by Joseph Lubin, a co-founder of Ethereum and the creator of the MetaMask wallet, also released a research examining the "effect of the Merge on Institutions."
Similar sentiments are expressed in the report regarding the institutional appeal of ETH staking rewards and environmental sustainability, but it also emphasizes the significance of the PoS Ethereum chain in "producing stronger security guarantees for institutional investors" and ETH's potential to function as a deflationary asset:
“Reduced ETH issuance and increased burns will systematically reduce ETH supply — putting deflationary pressure on ETH, thereby alleviating institutional concerns of token price dropping to zero, and increasing likelihood of an increase in value.”
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