APR Forecast - April 2024

Disclaimer: Twinstake does not provide staking services to retail customers. This article analyses staking rewards data for Twinstake-supported crypto assets and provides Twinstake’s opinion on their 3-month projection. The information in this document is not intended as a promotion, offer, invitation or solicitation for the purchase or sale of any investment, nor is it intended to give rise to any other legal relations whatsoever and must not be relied upon for the purposes of any investment decision. Any forward-looking projection is purely representative of Twinstake’s opinion. If you do not have the relevant professional experience in matters relating to crypto asset investments, you should not consider this article to be directed at you.

Twinstake's APR forecast for April 2024 anticipates a slight decrease in Ethereum's staking APR to 3.85%, attributable to increases in the active validator set's size. While the Ethereum validator set continues to grow, there's a noted decline in the percentage of total supply staked across SOL, NEAR and ATOM. The forecast suggests that the recent decline in staking rates may decelerate, leading to the stabilization of the recently higher APRs across these chains in the forthcoming quarter. Moreover, it's anticipated that the recent surge in transaction activity on Solana could persist, underpinning increased MEV opportunities and significantly boosting rewards. The expected changes in APRs during Q2 vary, ranging from a decrease of 94 basis points to an increase of 56 basis points. Noteworthy is the rise of higher APYs on NEAR and SOL compared to their January figures, with SOL particularly benefiting from the increased MEV-related rewards mentioned earlier. Additionally the DYM staking APR is expected to drop by a quarter, as a result of the recently adopted proposal to reduce the maximum inflation as well as the ideal staking ratio.

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ETH

Since January 1st, the number of Ethereum validators has grown by 10%, reaching 980,000. A significant proportion of this growth activity was observed in February, fueled by staking activities on platforms like [ether.fi](http://ether.fi/) and Lido. Towards the beginning of April, there has been a notable rise in the number of validators waiting to join the network, with over 14,000 in the queue, a phenomenon not witnessed since the period following ‘The Merge’ in 2022/2023. This surge in validators has led to a decrease in the consensus layer APR from 3.10% to 2.97%. Similarly, the APR stemming from MEV has declined from 1.24% to 0.95%, in part due to the distribution of similar MEV amounts across a larger number of validators. Despite this, the variation in MEV per block has grown, likely due to increased network activity and trading volumes in the current market upswing. The total amount of staked ETH has remained steady over the last month until the first week of April. With the implementation of EIP 7514, which limits the rate of validator set growth to 8 validators per epoch, it's unlikely that the network will experience an increase in staking as rapidly, despite the recent spike in the validator queue. Further developments like EigenLayer, could offer higher yields on staked ETH, potentially prompting a further rise in staking interest. As a result, Twinstake is of the opinion that APR levels are expected to remain stable at around 3.85% (including MEV) throughout the second quarter, although there could be some volatility towards the end of the quarter as the ecosystem continues to evolve.

SOL

Solana has experienced significantly increased MEV opportunities through JITO. In December 2023, JITO MEV contributed to the staking APY in the order of 0.01%. However, massively increased transaction activity on Solana, attributable to the price action as well as high levels of bot activity, has seen a noteworthy surge in both transaction fees paid to operators as well as MEV opportunities. JITO has seen MEV APY’s in excess of 75bps over the past two weeks. This APY boost amplifies the positive impact that the reduction in staking rate from 68.3% to 62.9% has had on Solana’s staking APY. In January, Solana’s APY was 7.35% and is currently at 8.52%. It is expected that the increased MEV rewards will prevail, but will be countered with increased staking demand as stakers are attracted to the higher returns. Additionally, the scheduled decreasing inflation rate will further reduce the APY. Twinstake believes an APY of 8.39% is a reasonable forecast for the end of June.

MATIC

Over the past quarter, the total stake on the network increased from 3.43B to 3.59B MATIC. This 4.7% increase in total stake has contributed to the 0.54% reduction in APR over the quarter. Another contributing factor is the increased observed block time of 2.44s. The resultant current APR fluctuates around 4.82%. Looking ahead into the upcoming quarter, Twinstake expects the total stake to continue its upward trajectory, considering the recently launched Laser Digital fund in collaboration with Trufin liquid staking protocol, as well as excitement surrounding the upcoming POL upgrades. Additionally, Polygon’s relatively stable price movements may offer a lower risk asset. It is expected for block times to fall back down to the 2.30s level seen in early January. Importantly, Polygon has a predefined schedule for the reward per checkpoint which reduces annually and is expected to reduce the issuance by 17% in June. Therefore the Twinstake APR projection for MATIC APR is 4.11% by the end of Q2.

NEAR

A significant decline in the amount of NEAR being staked in Q1 from 575M to 529M resulted in a drop in the percent of the total supply staked to drop by a tenth to 44.7%. NEAR has a fixed 5% inflation rate, although the block time varies significantly and has recently been at 1.25s, a 12% increase in the block times seen in early January. These dynamics, coupled with recent degraded network validator performance which caused multiple validators to be kicked out of the active set, have caused the APY on NEAR to increase from a stable 9.62% to a volatile 10.34% currently. It is expected for this reward variance to abate over the coming months, and for the % of NEAR staked to recover. Therefore, a return to an APY of 9.80% is predicted.

ATOM

During Q1, the staking rate on COSMOS initially increased to its peak at 65.74% in mid Feb, followed by a subsequent decrease to 63%; similar to levels seen at the beginning of the quarter. Given the targeted approach to inflation rates, whereby inflation increases if the staking rate is below 67% and decreases if above the threshold, the reduction in staking ratio has kept the inflation on ATOM at the maximum value of 10%. With the reduced fraction of supply staked, the APR has risen by 45 bps to 16.82% from mid February.  Meanwhile, block times have remained fairly stable and do not have a significant impact on the volatility of APRs. It is expected for the recent inflation rates to persist, with the inflation rate remaining at the maximum of 10%. Assessing the past year of price action, ATOM’s price returns when compared to its volatility risk has underperformed compared to the likes of ETH and SOL. It is possible that the staking ratio decreases in Q2 as ATOM holders rotate their capital into assets with greater price action. Therefore, Twinstake believes the APR will stay at around 16.90%, if not rising slightly in the event further withdrawals do indeed materialize.

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A summary of Twinstake’s APR forecast, representing how we believe the APRs will change over the coming quarter, is shown in the following table.

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‍It is important to note that realised APR and volatility are calculated from 30 days of daily aggregated APR data and are current as of the time of writing (05/04/2024). The APRs shown are with respect to native token value. APYs are shown for assets with an autocompounding of staking rewards, whereas APRs are displayed for assets without native autocompounding.

The projected APR estimates are the result of a combination of mathematical forecasting, expertise regarding upcoming network upgrades, insights into the network's current state, and Twinstake’s qualitative opinion. For further information regarding how staking works, or for additional information regarding the networks supported by Twinstake, reach out to us at [email protected].

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Twinstake is a leading institutional staking provider which offers unrivalled knowledge and experience of the institutional market from our founding heritage coupled with deep crypto expertise and technology from our team of core devs and industry veterans. Twinstake does not provide staking services to retail customers. If you do not have the relevant professional experience in matters relating to crypto asset investments, you should not consider this document to be directed at you.

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