The domino effect of the latest brutal crypto market downturn is bleeding into all corners of the space.
As a result of crashing prices, the “vast majority” of investors who have bet thousands of dollars on the success of Ethereum’s upcoming major upgrade are “firmly underwater on their position,” according to a new report from Glassnode, a blockchain intelligence firm, and the money they put in months ago is down on average over 50%.
Glassnode found that investors deposited Ether on the Beacon chain at an average price of $2,390. With the current price around $1,060, Beacon chain stakers are on average “holding a loss of –55%,” according to the report. Next to the realized price, or its value at the time it was deposited, of the Ether supply, Beacon chain stakers are “shouldering 36.5% larger losses compared to the general Ethereum market.”
The highly anticipated upgrade, called the “merge,” will shift Ethereum’s consensus mechanism from proof of work to proof of stake. Proof of work involves miners racing to complete complex puzzles to validate transactions. Proof of stake, by contrast, is a validation system that relies on a network of participants who are willing to pledge—or “stake”—a portion of Ether (ETH) tokens.
Though the merge hasn’t happened yet, investors can stake their tokens on the proof-of-stake chain, known as the Beacon chain, in advance. If they deposit at least 32 Ether, or about $39,000 at current prices, on the Beacon chain, stakers can become validators once the merge happens, which is beneficial as they’d earn token rewards depending on how much they stake and have a hand in verifying transactions on the network. The catch is that they cannot withdraw the tokens they stake until then.
Some predict the merge will finally happen in August, or September or October at the latest, but its exact timing is unknown.
With the price of Ether down nearly 75% from its all-time high, and because investors cannot pull their staked Ether out before the merge, there’s also been a slowdown in Beacon chain deposits.
“Throughout 2020 and 2021, it was common to see between 500 to 1,000 new deposits of 32 ETH per day. Currently, the weekly average number of deposits has dropped to just 122 per day, which is the lowest it has been to date,” the Glassnode report reads.
Nonetheless, the Ethereum community remains bullish on the merge.
Ethereum developers successfully transitioned the Sepolia test network to proof of stake on Wednesday. The Goerli test network is next, and after, developers plan on finally moving forward with the merge on Ethereum’s mainnet. But only time will tell whether Beacon chain stakers made the right move betting big on the merge.