In a research note released recently by Gautam Chhugani, a Senior Analyst at AB Bernstein, Ethereum’s recent underperformance is presented as an opportunity rather than a setback. Chhugani’s comprehensive analysis explores Ethereum’s supply mechanisms, institutional adoption, and staking dynamics, presenting a case for a favorable risk-reward outlook.
1. Ethereum’s Deflationary Supply and Staking Yields
Chhugani highlights Ethereum’s transition to proof of stake (PoS) and the burn mechanism as pivotal to maintaining its total supply at approximately 120 million ETH. He says that this setup generates a steady staking yield of about 3% annually in Ethereum terms, adding to its appeal. He also points out that a substantial portion of Ethereum’s supply—around 28%—is locked in staking contracts, with another 10% tied up in deposit/lending mechanisms or bridged to Layer 2 solutions. This concentrated supply, in Chhugani’s view, creates a favorable demand-supply dynamic for Ethereum investors.
2. Ethereum ETFs Gaining Momentum
Ethereum’s ETF launch, while initially lackluster, has gained significant traction, according to Chhugani. He reports that Ethereum ETF assets have grown to $11 billion, with inflows of $574 million last week, marking the first time these inflows offset Grayscale Ethereum Trust’s outflows. Chhugani cites Blackrock’s ETF as a major driver of this shift, with Ethereum under management (excluding Grayscale) up 36% month-on-month in November. He believes this momentum signals growing institutional confidence and strengthens Ethereum’s long-term prospects.
3. Potential for Staking Yields in ETFs
Chhugani notes that Ethereum ETFs currently cannot offer staking yields due to regulatory restrictions. However, he suggests that a change in U.S. regulatory policies under a crypto-friendly administration could pave the way for this feature. With Ethereum yielding 3% in the current market, Chhugani argues that including staking yields in ETFs could push yields to 4-5%, particularly in a more active blockchain environment. This development, he believes, would attract greater institutional interest and enhance Ethereum’s position as a digital asset.
4. Ethereum’s Network Dominance
Ethereum remains the dominant blockchain in terms of total value locked (TVL), commanding 63% of the market, as per Chhugani’s findings. He highlights that Ethereum’s trust among retail and institutional users is unmatched, even as competitors like Solana make gains in retail use cases. Chhugani points to Ethereum’s Layer 2 networks, which handle over 15 million daily transactions—significantly more than Ethereum’s base layer (approximately 1 million daily transactions)—as evidence of the ecosystem’s scalability and enduring relevance.
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