Ethereum 2.0 had record daily deposits: 3 possible reasons

Ethereum 2.0 had record daily deposits: 3 possible reasons

Key facts:
  • Starting in March, deposits are higher, averaging $50,000 per day.

  • The merger seems closer and closer and more actors enter the stage.

Little by little, Ethereum is completing the steps for its transition to version 2.0 of the network. This week, a trend that had been going on since the beginning of March 2022 took hold, showing a very marked increase in daily deposits of ethers (ETH) staked in the Beacon Chain contract. In the middle of the month, a daily record was broken, with more than 200,000 ETH deposited in one day.

The data can be observed in a graph of the statistics site beaconcha.in. The graph shows how deposits reach higher numbers and stable in March compared to the previous months, which start to be measured from September 2021, when the Beacon Chain was activated.

This Beacon Chain, whose translation into Spanish is “beacon chain” or “beacon chain” is the first fragment of the 64 that will make up Ethereum 2.0. Unlike the current network, this one will work with the consensus algorithm proof of stake (PoS) or proof of participation, leaving behind proof of work (proof of work, PoW, or simply mining).

Ethereum 2.0 had record daily deposits: 3 possible reasons
Staking on Ethereum 2.0 is at a sustained high level in March 2022. Source: Twitter @terencechain.

This transition of course involves a lot of testing and tuning prior to the merge. In this sense, the Ethereum 2.0 smart contract already allows the deposit of ethers, a native token of the network, with which users position themselves as future block validators.

In order to be a validator, each user must have 32 ETH in staking. It is also possible for those who do not reach that amount – equivalent to about USD 100,000 – to contribute to a staking pool, which would add their resources to validate transactions and receive rewards in return.

3 reasons that could explain this deposit record

What factors could have influenced the ethers deposit in Ethereum 2.0 to increase in the last days of March? Next, we detail three of them.

1. The merger seems closer and closer

During 2021, talking about the merger (or The Merge) between the two Ethereum chains seemed like a long way off. In fact, Vitalik Buterin himself predicted that this could arrive by the end of 2022, as reported by CriptoNoticias.

However, the tests advanced and currently the last stage is already passed, which involves the Kiln testnet. In this phase, the PoW and PoS models are tested simultaneously. Kiln had to be released early, due to various glitches that occurred during testing with the previous tesnet, Kintsugi.

Another important step is that the main client for running Ethereum nodes, which is Go Ethereum or Geth, you are ready to work with Ethereum 2.0. As reported by developer Marius van der Wijden On twitter, until now a fork of the client has been used, but the definitive version is already ready. This represents an additional signal that the new version of the network is closer.

Keep in mind that the funds deposited in the Ethereum 2.0 contract are blocked until after the transition occurs. Therefore, there is now a greater hope of being able to withdraw those funds in the near term, and that stimulates more investors to deposit. The negative side is that they would have less profit than those who invested earlier.

2. Large companies start to participate

The possibility of becoming a validator and having an important role in the new Ethereum blockchain seduces many, including large companies in the sector.

Such is the case of Consensys, a company that develops Ethereum solutions —the Metamask wallet, for example— that recently acquired more than 200,000 ETH, equivalent to more than USD 624 millionaccording to the current price of the cryptocurrency.

Probably, the purchase of Consensys carried out in the week of Monday, March 14, is one of the operations that has most boosted staking in the ETH contract in the month. In the chart above, the peak above 200,000 ETH can be seen at precisely that point in March, as the chart below shows.

Ethereum 2.0 had record daily deposits: 3 possible reasons
The Beacon Chain received the deposit of 215,776 ETH on March 15, 2022. Source: beaconcha.in.

3. Leverage through Lido

In a Tweet of the user @terencechain in which this record is pointed out in the smart contract of Ethereum, another user of the social network answered what this increase in March could be due to the possibility of leverage granted by Aave and Lido. The first is a platform for lending assets with cryptocurrencies as collateral, while Lido is a staking pool for Ethereum and other networks.

To justify his finding, this person cites data from the blockchain itselfin which you can see how a user doubled his ETH deposits thanks to this leverage technique.

Since the beginning of March, Aave incorporated the stETH token (the one that Lido grants when staking ETH through its pool) to use as collateral when requesting loans. Thus, a user could leverage himself by asking for more ETH from Aave and then depositing them in staking through Lido. The stETH received, meanwhile, serve as collateral for the loan.

Taking into account that Aave is the second decentralized finance platform with the highest total value locked, this possibility takes on even more weight, since more cases like the one described could be repeated. As a consequence, the ETH in staking would grow considerably, as it happened during March.

Ethereum 2.0 is already on the horizon

In short, the concrete probabilities that Ethereum 2.0 will arrive this year may be the main factor for the staking in its smart contract to increase. It makes more sense and seems safe to invest to be a validator now compared to a few months ago.

On the other hand, investments from large companies and the possibilities offered by decentralized financial service platforms also play a role. All this combo, along with the efforts of the developers, makes the transition seem closer and closer.

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