A key driver behind the recent crypto bull run was strike of ether tokens on Ethereum. The world’s largest layer 1 network is in the process of moving to Proof-of-Stake (PoS). That driver in itself could have been good enough to capture more value on the network, and with it in other cryptocurrencies as well. But now that the market is falling sharply in value, Ethereum (ETH) is not in a good position. More than 80% of strikers on Ethereum are now losing.
Strikers make a loss
That writes Parsec Finance founder Will Sheehan on Twitter† At the current ether price of $1052, 83% of ETH strikers are underwater. Still, a lot of strikers got into the smart contract before staking when the value of ether was just $500, the market analyst said.
It’s one big, clear spike of strikers around USD 500. It’s not exactly well distributed. Now if the price drops to somewhere above $500, that percentage won’t have much of an effect on the losing percentage. The contract for staked ETH lasts for a certain period of time. You cannot terminate the contract and have it re-entered at a lower level. This is possible on, for example, Cardano (ADA).
we’re gonna do this for every major staking contract btw, more painful charts to come
— Will Sheehan (@wilburforce_) July 1, 2022
Ethereum network more vulnerable
This is not so positive for two reasons. First of all, the declining interest in staking indicates that people are currently less willing to invest in crypto in the first place. Striking ETH is a nice long-term basis. You can then expand your portfolio with other projects and positions. If even your staked ETH (aka sETH’) is under water, you’re much less likely to have that tendency. A while ago we wrote that stablecoins now have the largest market share ever. So people are very reluctant to invest in crypto.
The second reason is actually much more important. The security of the Ethereum network depends on staking, and thus on how much money people are willing to commit to the staking contract. If this amount shrinks too much, someone can attack the network by suddenly committing a lot of money in the contract. This is how you can hijack the network.
That sounds far-fetched, but if the price of ether falls hard enough, you can buy enough tokens with enough money to force a change on the network. When the tokens were still worth a lot, this was much more difficult.
