The State of Staking - Industry Analysis & Trends

What a difference a quarter makes. After an 18th month slumber and a lackluster Q3 2023, animal spirits awakened in Q4. There are early signs the bull is back. Anticipating approval for the spot Bitcoin ETFs in January, investors bid up the total crypto market cap to $1.8N, a blistering increase of 54% Q/Q and 214% Y/Y. $1.8TN is the highest total crypto market cap since the last bull market cycle's peak of $2.3TN ni Q1 2 / Q4 21.

Crypto markets drifted lower during the quarter. The lack of near term catalysts, regulatory uncertainty, and macro challenges left markets in a holding pattern. While crypto assets were down 5-10% on a Q/Q basis, they were up 10-40% on a Y/Y basis (except stablecoins), indicating that while the bear persists, the market is off the bottom.

Q2 2023 marks the 1-year anniversary of the LUNA / UST implosion, during which the total crypto market cap dropped below $1TN. Despite high profile, far reaching lawsuits filed by the SEC against Coinbase and Binance in early June, crypto markets were flat on a quarterly basis, and up 35% from the LUNA nadir a year ago.

Despite a challenging macro environment, the closure of several systemically important crypto banks, and regulatory action against industry leaders, the crypto market started 2023 with a bang. This after the FTX implosion dragged the market to a multi-year low in Q4 2022. Crypto assets increased by ~ 50%+ Q/Q across the board, reaching their highest levels in the last year.

The FTX bankruptcy, announced in early November 2022, ravaged the crypto markets. Q3's ETH-merge-driven rebound proved short-lived, as crypto prices fell all the way back to Q4 2020 levels, erasing the past two years of gains. The top 35 PoS assets suffered more downside volatility than Bitcoin and the total crypto market at large. Stablecoins experienced their first quarterly net outflow in the past year, decreasing in value by $11B in Q4.

Catalyzed by the Ethereum merge on September 15th, 2022, PoS assets rebounded from their Q2 lows, increasing share versus Bitcoin, stables and the broader crypto market. The market capitalization of the top 35 PoS assets increased 15% Q/Q to $236BN, while the total crypto market cap was only up 6% to $979BN.

Despite the extreme sell off in crypto assets, stake rates and staking yields remained largely unchanged from their record highs in Q1. The average staking yield decreased slightly from 15.4% in Ql to 14.6% in Q2 and the average stake rate remained effectively flat. As a result of the significant loss in market value, annualized staking rewards decreased by 73%.

Several key staking metrics reached record highs in Q1 despite lackluster crypto market performance. The average staking yield increased by 11% Q/Q to 15.4%, and the average stake rate increased by 14% Q/Q to 49.3%. As a result, annualized staking rewards hit an all-time high at just under $15 billion, up 57% vs Q1 2021.

If 2020 was the year proof-of-stake (PoS) emerged, 2021 was the year of its dominance. PoS dominance, or market share of the total crypto market capitalization, was 31% at the end of 2021, a Y/Y increase of 127%. There are more thriving PoS ecosystems and staking opportunities than ever.

Q3 was an absolute banner quarter for PoS crypto assets. The market cap of the top 35 PoS assets represented 30% of the total crypto market capitalization as of 09/30, marking the first time PoS assets have accounted for > 25% of the total crypto market cap.

Proof-of-stake (PoS) assets outperformed the overall crypto market, falling only 20% on average quarter-over-quarter. In Q2, stakers earned an additional yield of $1.21 to $3.59 on a $100 initial investment compared to those who simply held an asset.

Proof-of-stake (PoS) adoption continued its trajectory of strong growth in the first quarter. The total market cap of PoS assets grew by 150% QoQ (not annualized).

2020 was the most transformative year for staking in history, bringing the emergence of many new proof-of-stake networks, which now represent 25 of the top 100 blockchains in terms of market capitalization.

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