Andy Baehr is a Managing Director at CoinDesk Indices (CDI).
Ethereum’s conversion to proof-of-stake not only created the foundation for the liquid staking ecosystem, it delivered a native crypto rate to finance that can serve as a critical piece of market structure. The staking rate – measuring the total income that stakers receive for validating Ethereum transactions – has immediate applicability in DeFi, centralized digital asset finance and traditional finance.
How does this compare to rates in traditional finance? Consensus rewards are paid to help secure – but not finance – the network. They are determined by a stated policy, like a central bank rate, but not subject to political influence or economic interpretation. They are crystal clear and reasonably predictable.
The calculation of a standardized and independently-calculated rate, along with access to its components, can provide analysts with information to help understand Ethereum better, both internally and in comparison to other money markets. Ethereum validators stake 32 ETH, and get a variable stream of rewards. Future rewards can be hard to predict. This yield volatility is not optimal when evaluating a validator’s financial performance with measures like its Sharpe ratio.
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