ETH Staking Surges to All-Time High as Ethereum Achieves Milestone
The total locked ETH on the largest proof-of-stake (PoS) network has reached a new all-time high, signaling a significant surge in ETH staking. According to Glassnode, an on-chain analysis firm, the total locked ETH now stands at 27.03 million, representing a 40% increase since the execution of Shapella, an upgrade that allowed for withdrawals and marked the transition from proof-of-work to proof-of-stake for Ethereum.
With the introduction of Shapella, users who had been hesitant to deposit their ETH for an indefinite period of time began staking more confidently. The option to withdraw staked ETH and earned staking incentives provided reassurance and attracted more users to participate in staking. This led to a spike in withdrawal requests initially but has since been overshadowed by a consistent increase in deposits.
Currently, the total amount of ETH locked accounts for approximately 21% of the circulating supply of Ethereum, according to blockchain research firm Nansen. Interestingly, this surge in staked amount coincides with a decrease in ETH reserves on centralized exchanges, which have dipped over 20% since the introduction of Shapella. The liquid supply of ETH held by the public now constitutes just 18% of the total.
This trend indicates a shift in the Ethereum market, as more individuals are choosing to stake their ETH and earn yields rather than keeping it on exchanges. Despite the gradual reduction in staking rewards over the past two years, the demand for staking continues to grow.
Moreover, the introduction of Shapella has unlocked new opportunities for liquid staking tokens (LST), which allow users to participate in staking while retaining the flexibility to utilize them in decentralized finance (DeFi) for higher yield potential. Tokens such as Lido Staked ETH [stETH] and Rocket Pool’s rETH have emerged as popular options for DeFi collateral on various networks.
Liquid staking protocols have gained dominance in the ETH staking market, accounting for approximately 36%, as per Dune data. This category, which was non-existent when ETH staking was introduced in December 2020, has witnessed steady growth and outperformed traditional staking options such as centralized exchanges and staking pools.
When considering the future growth potential of Ethereum, it is important to acknowledge the significant role that staking will play in the network’s evolution. While the popularity of ETH staking has increased, it has also led to a decrease in staking yields, contrary to the initial motivation for participation. As the number of stakers continues to rise, the rewards per validator have notably dropped. Currently, the annualized financial return per validator stands at 4.2%.
Overall, ETH staking has experienced a surge in popularity and adoption, with the total locked ETH reaching an all-time high. This growth aligns with a decrease in ETH reserves on centralized exchanges, highlighting a shift in market dynamics. As Ethereum continues to evolve, staking is expected to play a pivotal role, despite the reduction in staking yields. The introduction of liquid staking tokens has provided users with more flexibility and improved opportunities for participating in staking while maximizing returns in the DeFi ecosystem.