Zhitong Financial Network
CITIC SecuritiesAccording to a research report released recently, the merger of Ethereum was launched, and the conversion to a pure proof-of-stake (PoS) mechanism was planned. To increase computing power to obtain income, staking Ethereum and becoming a validator will be the only way to obtain income. The bank’s analysis believes that after the merger of Ethereum, the demand for GPUs related to mining will decline, and the main GPU supplier NVIDIA will face the risk of stock mining cards returning to the secondary market and the disappearance of new mining demand. The increase in the amount of Ethereum staking is expected to help the cryptocurrency exchange coinbase to obtain more commission income. However, the bank judged that considering that the price of cryptocurrencies has continued to weaken since the beginning of the year, the current and subsequent possible impacts have been fully recognized and digested by the market, and are basically reflected in the stock prices of related companies.
Event background:With the start of the Ethereum merger, PoW will cease to exist and enter a complete PoS era.
1）The Ethereum merger refers to the merger of the current consensus layer using PoS (Proof of Work) and the mainnet execution layer using PoW (Proof of Stake).
2）Before the merger, the issuance mechanism of the new ETH includes PoS and PoW. The new ETH can be obtained by the verifier on the beacon chain under the PoS mechanism by proving the state of the chain and proposing blocks, or by the miners under the PoW mechanism through computing power Competitive gains, while PoW will be deprecated after the merger.
3）Under the new mechanism, the income of participants will no longer be related to the proportion of computing power in the entire network, but will be related to the number of times they pledge ETH to become a verifier and participate in verification, and participants no longer need to purchase a large amount of hardware such as GPUs.
The main points of the report are as follows:
Nvidia: It is expected that the GPU business will be significantly impacted, but the stock price has more than reflected the market expectations.
The bank judged that the merger of Ethereum and the cancellation of POW will significantly reduce GPU demand related to mining, which will have a significant impact on NVIDIA’s GPU-related revenue, including the return of stock mining graphics cards to the secondary market and the disappearance of new mining demand. Referring to the 2021/2022 ETH network’s annual average computing power increase of 392/290TH/s, the bank estimates that the net increase of NVIDIA graphics cards participating in ETH mining in 2021/2022 is about 4.75/4.72 million, and the entire network is used for ETH Mining NVIDIA GPUs are expected to exceed 10 million blocks, with a total value of about $4.82 billion at suggested selling prices. This line quantitatively analyzes the impact of the event:
1) Stock market:It is expected that more than 10 million second-hand NVIDIA graphics cards will flow into the second-hand market at most. However, considering the loss of the graphics cards used for mining, it is estimated that the number of graphics cards that will eventually flow to the secondary market will be about 4 million to 5 million. The impact is expected to be within 1 month, which is relatively controllable;
2) New markets:It is expected that the subsequent demand for new GPUs for ETH mining will basically disappear, and mining has accounted for about 20% of NVIDIA’s game graphics card sales in the past two years, accounting for 9.6% of the company’s overall revenue. Since the beginning of the year, the price of cryptocurrencies has continued to weaken. The bank estimates that the above impact & impact has been more reflected in the past two quarters. Nvidia’s stock price has fallen by more than 50% year-to-date, and the market has more reflected such expectations.
Coinbase: Benefiting from the Ethereum merger, the company is expected to generate more revenue from the ETH staking business.
1）The PoS mechanism will bring about an increase in the ETH pledge rate. According to Ouke Cloud Chain data, the current ETH pledge rate is only 11.4%. The PoS mechanism relies on the verifier to verify transactions to keep the system running, and requires the verifier to pledge ETH. It is expected that ETH will be cancelled after PoW is cancelled. The pledge rate will increase significantly.
2）As a leading cryptocurrency exchange, ETH assets on the coinbase platform account for about 15% of the total network assets. Coinbase can act as an intermediary to provide ETH pledge services for institutional and individual users, and can charge up to 25% of customer pledge income as Commission, generating pledge service income.
3）Based on the ETH price of $2,000 and the annualized rate of return on pledge of 5%, the pledge income of all ETH assets on the coinbase platform can reach up to $1.75 billion, and the commission income of coinbase can reach up to $310 million.
Risk factors:Market competition continues to intensify risks; Ethereum merger progress is less than expected risks; global geopolitical conflicts, etc;
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Responsible editor: Li Tiemin