Staked ether (stETH) is gradually establishing itself as a benchmark for the entire on-chain economy.

A recent report from investment management firm ARK Invest illustrates how Ethereum's monetary policy has positioned staked ether as a unique asset that resembles sovereign bonds. Much like how the federal funds rate serves as a gauge in traditional finance, the ETH staking yield reflects smart contract activity and economic cycles within the digital asset ecosystem.

Comparing Staked Ether to Sovereign Bonds

Ethereum allows ether holders to stake their tokens, effectively locking them in the network for a yield. Currently, staked ether provides an annualized yield of 3.27%.

There’s a liquid staking token known as stETH, available through the Lido project, which permits Ethereum stakers to redeploy their staked assets into decentralized finance (DeFi) protocols. Unlike government bonds, which can be subject to defaults, Ethereum's network ensures user access to funds anytime.

Furthermore, though ether can experience inflation, its issuance is more transparent compared to traditional bonds. Recent on-chain data indicates that ether's supply expanded at a rate of 0.33% per year.

Growing Use in DeFi

Investors can stake their ether either by establishing their own validators or through specialized DeFi protocols like Lido and Rocket Pool. These protocols facilitate staking and issue liquid staking tokens, allowing investors to utilize stETH while generating yield. As a result, stETH has begun to replace ETH as the preferred collateral in the DeFi space.

The implications are significant, as the more stETH captures market share, the more the cryptocurrency economy is expected to reorganize itself around the yield provided by staked ether, potentially mirroring the role played by the Federal Reserve’s funding rate in global finance.