ETH Staking Rewards Projected To Be Approximately 6%
This is a very important question and one that requires some consideration by companies such as BlockFi and Celsius. Perhaps some have started investigating the adjustment of rates, as competition is about to enter the market. Currently the APY on ETH deposits is in the region of 4% per annum and will soon be outperformed by staking rewards. Whether ETH is locked up via a lending company or in a staking protocol makes little difference but what does matter are the returns. Some may argue that a staking protocol is actually safer and with higher gains, it may become the option of choice.
Projects such as Ankr are set to do really well in the future, as they will provide a decentralized service that will enable users with smaller amounts of ETH to take part in staking and earn rewards. ETH will only be staked in batches of 32 ETH, which excludes a lot of potential market participants. However, Ankr have seen an opportunity and created a decentralized solution to this barrier.
This is why I am bullish on Ankr post 2020 and am not too concerned about current price action. In a recent article, I explore the future potential of Ankr, especially with the implementation of scheduled developments.
The 3 Outcomes
Lending companies can choose to ignore this advancement and rather focus on BTC and stable coins. This is probably a bad idea as ETH will most likely start appreciating quite significantly in 2021. Large companies always want to be aligned with the trend and a decision to ignore a significant advancement would not be in their best interests.
Another approach would be to modestly increase interest so as to try and maintain their current clientele and perhaps attract more clients who are not sold on the idea of staking and prefer a solution they are more familiar with.
Then there is the most likely scenario in my opinion and that is to set interest rates slightly higher than the staking rewards. A small premium of 0.5% to 1% can go a long way to securing customers, especially when the product is a simple "deposit and earn" operation. When earning passive income, the idea is to be as disconnected as possible. Simply leaving funds in an interest bearing account is quite attractive to a majority of people.
However this plays out, the odds are on the side of interest rates increasing for ETH once ETH 2.0 is fully active and staking rewards are being minted. This is another reason why I am looking to accumulate more ETH and BTC as mentioned in "Let's Explore The World Of Passive Crypto Income - Part 9".