Ethereum, the blockchain on which the bulk of NFTs reside successfully tested, emerge
of its proof of work and proof of stake chains last week.
Well, as investors and users look forward to the main net launch in the next few months,
what could this mean for the blockchain's native token ether and what impact could it
have on crypto investing in the new economy?
We have Sudhu Arumugam, co-founder of CoinFlex, a leading crypto derivatives exchange and
yield platform joining us to answer all of those questions.
We have so many questions for you, Sudhu.
Great to have you.
Great to be here.
Thank you for having me, Angie.
Absolutely.
Okay.
So for for those who are unfamiliar with this merging of protocols, what does that actually
mean and how does this impact how we think about the blockchain and demand market demand
for ETH.
So ETH is moving, as you say, from a proof of work to a proof of stake model under the
emerge towards ETH 2.0 or the beacon chain.
And what is essentially means is that Ethereum goes from being technically a inflationary
asset, which means that it's, you know, there's a lot more supply to every year into the market
to a deflationary asset in that the what supplied versus what's burnt means that net there's
less and less ETH available in the ecosystem every year.
And the mechanism for that essentially is that a good chunk of the gas fees or block
rewards that go into each block is now being instead of being given to the miners, it's
now being sort of burnt within the ecosystem.
So it causes scarcity.
And, of course, that starts asking the question around, you know, what does that mean for
price.
And what does it mean for price?
It's also expected to significantly impact Ether staking.
How is moving to proof of stake, increase yields or returns for investors?
How should the market think about it?
Yeah, it's a very interesting question.
I mean, right now, if you wanted to stake your ETH, typically you would probably earn
sort of like 3% or something around that.
Under ETH 2.0 after the merge we're talking about or the market's predicting is going
to be like from 7 to 12%.
And the reason for that essentially is that unlike proof of work, which is where everyone
rushes to kind of verify the next block and win the price, here, there's a kind of rotational
system where everyone kind of, you know, patiently waits their turn to earn on the block rewards,
which creates a yield.
And you know, there's lots of pros and cons with that, the pros being that there's going
to be a lot less energy consumption in ETH.
And the con of that is that, of course, exchanges are being, you know, exchanges being the kind
of large custodians of ETH all of a sudden have kind of untold powers when it comes to
staking.
And because we hold a lot of client deposits in ETH and so we can stake as well on their
behalf, but it means that we are now making the decisions for the collective which becomes
really the the thesis of the exchanges become the kingmakers, which isn't so great either.
But in terms of the price action, it's been very, very bullish.
ETH is now up at US$3,000 again having tested the lows at around US$2000 to US$50 and also
the fact that the yields are doubling.
So it is an overall bullish environment in a bearish market.
It's interesting to also understand the dynamics from an institutional point of view as we
talk about mass adoption.
There's also this drive of institutional in this space.
Do you think that as ETH 2.0 comes to fruition and the move to proof of stake, do you think
this is going to further institutional adoption?
If so, why?
Yeah, I don't think I don't think the merge itself is is a whole factor for and from an
institutional perspective, from a retail perspective, it is because under ETH 2.0, there's kind
of lower gas fees and more certainty in fees, which is important for retail users.
If you're an institutional user and ETH fees have been pretty horrendous this last 18 months,
I don't think you really care about fee spiking from US$30 to US$200 if you're an institutional
customer.
I think for the institutional customers adoption to your question, I think really what we need
more around is the UI/UX of interacting with DeFi.
And there's a lot of a lot of things going on in that front.
You know, we've moved along for, you know, Metamask is obviously a great bit of tech
now.
We've got sort of institutional grade Metamask with a lot of custodians providing this within
a more secure, institutionalized framework as opposed to having it on your browser, on
your on your computer and keeping it permanently hot, for example.
I think those sort of incremental additions is going to help with institutional adoption.
And there're so many more ETH killers, if you will, and layer two solutions that are
also driving more people into this space beyond just ETH.
But it's, it's great to see all of the innovation in this new economy.
It's great to talk to you, Sudhu.
Really appreciate the insights here.
Thank you for having me on, Angie.
Great to chat.