Crypto Staking: Why Ethereum Network Activity Is Soaring – Forbes


DENVER, CO – FEBRUARY 18: People listen as Ethereum co-founder Vitalik Buterin speaks at ETHDenver … [+] on February 18, 2022 in Denver, Colorado. ETHDenver is the largest and longest running Ethereum Blockchain event in the world with more than 15,000 cryptocurrency devotees attending the weeklong meetup. (Photo by Michael Ciaglo/Getty Images)
Crypto staking is breathing new life into decentralized finance on the Ethereum network. Staking activity remains resilient despite the ongoing down market and the U.S. Securities and Exchange Commission’s claims that staking violates securities laws, resulting in Kraken’s closure of its staking business and an impending lawsuit against Coinbase. Since the completion of the Shanghai/Capella upgrade on April 12, the amount of ETH staked per week surpassed previous all-time highs in May, before a slight deceleration this month.
A persistent growth in staking volumes and accompanying protocols could become an impetus for a DeFi summer round two, led by Ethereum protocol improvements and expanded liquidity prospects for stakers.
Weekly Staked ETH
Liquid staking makes up a major portion of staking volume. Lido, the leading liquid staking protocol, represents 32% of the total staked ETH. Before Shanghai/Capella, any ETH locked up could not be withdrawn. Instead, liquid staking protocols began to issue synthetic tokens, called liquid staking tokens, that represent locked up funds that users can transact with while earning yield.
There was fear that staking volume would stunt and massive withdrawals would take place post-upgrade, but the contrary happened:

Some anticipate this to mark the very beginning of LSTFi’s explosion. ETH is still underutilized, with only 17% of circulating ETH staked. With DeFi primitives built atop LSTs, users can improve capital efficiency and find additional routes to earn yield. As centralized exchanges halt staking services, the ongoing development of LSTFi is expected to gain momentum. The market’s enthusiastic response to LST-backed stablecoins is evident, but there’s still a chance that the onslaught of interest in LSTFi could be due to the novelty of the projects.
Liquid staking, because it requires no ETH minimum nor laborious processes, is an accessible way to participate in running the Ethereum network, unlike running a complex validator node. And yet, the ranks of Ethereum validators have swelled to 625,000 already in action and 91,000 in queue. New validators have to wait around 41 days to join the network since there is a limit of how many new validators can join per day. Each validator is limited to 32 ETH and so entities with sufficient resources are likely running several nodes. That means there are thousands of unique institutions and individuals are represented among these network participants.
Recently, core ETH developers proposed increasing the staking limit to 2,048 from 32 ETH. These developers believe the increase would improve network effectiveness and enable solo-stakers or individuals to earn more. If this proposal passes, it will also increase the diversity of participants on the network and encourage more solo-stakers. In the meantime, as long as running a validator node continues to be resource intensive, it will be the less popular route for individuals to stake with and institutions will generally dominate the staking landscape.
With the majority of eligible ETH still unstaked and the growth of LSTs, it is likely that staking activity will persist for those assets. Although, aside from the obvious, the long-term winners from this surge remain uncertain with staking slowing down. What is clear, as of June 2023, is that over the past 8 years the Ethereum experiment went from an experimental white paper to a global economic network with billions of dollars worth of assets impacting millions of users. Not bad for a blockchain network that critics originally thought wouldn’t be able to scale beyond a few thousand participants. Staking and building in layers have allowed Ethereum’s blockchain ecosystem to scale the network’s incentive model.


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