Recent findings from ARK Invest indicate that staked Ether is now an important benchmark in the crypto economy owing to its very attractive risk-adjusted returns. ARK Invest emphasized that the unique nature of staked Ether positions it similarly to sovereign bonds.
Lorenzo Valente, a research associate at ARK Invest, remarked that the yield from ETH staking is the primary gauge for smart contract activity and economic trends within the digital asset ecosystem alongside other metrics.
Staked Ether Versus Sovereign Bonds
Ethereum’s design allows users to stake their ether for a yield, currently 3.27% annually, according to on-chain data. This yield makes stETH comparable to government bonds.
However, ARK Invest highlights key distinctions, such as Ethereum’s ability to ensure access to their funds, unlike sovereign bonds that carry default risks. Staked Ether’s yield remains consistent and only fluctuates based on on-chain activity.
While staked Ether offers transparency regarding inflation rates, risks remain. Validators face penalties called “slashing,” when they fail to behave properly. Hence, there is an element of risk, but it can’t be compared with conventional government-issued bonds.
The Rise of Staked Ether in DeFi
Investors have two main avenues for staking ether: becoming their validators or utilizing DeFi protocols like Lido and Rocket Pool. These platforms simplify the staking process and offer liquid staking tokens (LSTs) suitable for various DeFi activities.
The increasing use of stETH has positioned it as a preferred collateral option in DeFi protocols. As of now, about 31% of the total stETH supply is used as collateral, reflecting a trend where staked Ether is surpassing ETH in terms of collateral preference.
Shaping the Future of Crypto Finance
As staked Ether continues to gain traction across major DeFi platforms, it is prompting a recalibration within the crypto financial ecosystem. Competing projects must now demonstrate that their offerings can yield returns superior to stETH.
For instance, if the ETH yield compounds to 4% over the long term, other investment vehicles must significantly outperform that return to attract investors. This competitive landscape has led Layer 1 projects like Solana and Avalanche to offer higher staking rates to entice users.
Furthermore, ARK Invest notes that the demand for staked Ether is influencing lending practices in the DeFi space, as users favor lending stETH over traditional stablecoins.
Blockchain and AI are Catalysts for Economic Revitalization – ARK Invest
Meanwhile, ARK Invest founder, Catherine Wood, has predicted that low interest rates could fuel broader market rallies. She also emphasized the importance of diversified investments in artificial intelligence (AI).
In its Q3 crypto market report, ARK Invest identified the convergence of innovative technologies, particularly AI and blockchain, as crucial for rejuvenating the global economy. As inflation gives way to deflation in various sectors, ARK Invest argued that its five innovation platforms—robotics, energy storage, AI, blockchain, and multi-OMIC sequencing—will impact macroeconomic indicators in the next several years.
ARK Invest Highlights Disruptive Tech’s Role
Wood emphasized that the most compelling investment opportunities are disruptive innovations that may lead to more diverse market leaders. According to ARK Invest, the economy has confronted successive recessions driven by rising interest rates since early 2022.
Therefore, the company stressed that AI and blockchain technologies are great additions to productivity growth and follow-through innovation. Notably, the ARK Next Generation Internet ETF has outperformed global equity indices in recent quarters, mainly because of holdings in stocks like Tesla and Palantir Technologies.
Harnessing Technology for Economic Resilience
ARK Invest further pointed out that the initial inflation triggered by supply shocks is transitioning to disinflation, potentially leading to deflation. The firm believes that advancements in AI and blockchain have contributed to this economic shift.
Companies that aggressively adopt these technologies can enhance productivity and create new solutions to help counteract economic downturns. ARK Invest posits that these innovations could not only stimulate economic recovery but also transform market dynamics by bringing forth new leaders across various sectors.
