While the recent headlines may have captured Binance and CZ’s legal troubles and the increased regulatory scrutiny on centralized exchanges, there has been a notable shift in the Ethereum staking pool dynamics. With the increase in the number of validators exiting the pool, ETH issuance has seen a slowdown in its growth rate. This has subsequently resulted in the first reduction in the staking pool balance since the Shanghai upgrade. Validator Exodus According to blockchain intelligence platform Glassnode, an increasing number of validators are currently exiting the Ethereum staking pool. The introduction of stake withdrawals in Shanghai acted as a catalyst, leading to a surge in validators leaving the staking pool, claiming rewards, and reshuffling their staking provider
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While the recent headlines may have captured Binance and CZ’s legal troubles and the increased regulatory scrutiny on centralized exchanges, there has been a notable shift in the Ethereum staking pool dynamics.
With the increase in the number of validators exiting the pool, ETH issuance has seen a slowdown in its growth rate. This has subsequently resulted in the first reduction in the staking pool balance since the Shanghai upgrade.
Validator Exodus
According to blockchain intelligence platform Glassnode, an increasing number of validators are currently exiting the Ethereum staking pool.
The introduction of stake withdrawals in Shanghai acted as a catalyst, leading to a surge in validators leaving the staking pool, claiming rewards, and reshuffling their staking provider and setup. Exiting events averaged 309 validators per day during this time.
The report also observed a gradual increase in exiting events since early October, ultimately reaching an average of 1,018 validators per day. This uptick aligned with the recent uptrend in spot prices across crypto markets.
As a result, the Total Effective Balance – which represents the ETH in the Staking Pool that is actively participating in Proof-of-Stake Consensus – has slowed in its growth and is now undergoing the first decline since the Shanghai upgrade.
“Recent weeks have seen a notable change in the Ethereum staking pool dynamics, as the number of validators exiting the pool starts to increase. This has resulted in a slowdown of the growth rate for ETH issuance and the first reduction in the staking pool balance since the Shanghai upgrade.”
A majority of the exiting validators have voluntarily withdrawn over the past eight weeks. Meaning the stakers independently decided to exit the staking pool instead of slashing, which is a penalty applied to validators who violate protocol rules.
During the same period, there have been only two instances of slashing, with one being significant, which involved the slashing of 100 recently joined validators who were penalized for simultaneously signing two different blocks within the network.
What’s Driving This Investor Behavior?
Since October, Glassnode stated that centralized exchanges – particularly Kraken and Coinbase – have consistently led to stake withdrawals. Meanwhile, Liquid Staking Providers, dominated by Lido, have seen a modest increase in withdrawn stakes.
Investor behavior driving these trends includes a shift in staking setups, potentially driven by regulatory concerns, and a possible rotation of capital from CEXs to Liquid Staking Providers or safer assets like US treasuries.
Additionally, Lido stood out among Liquid Staking Providers for exits. Lido’s dominance is further highlighted by a net increase in its staked balance by 468k ETH. In contrast, Coinbase and Binance showed net increases among CEXs, while Kraken experienced a reduction of -19.4k ETH. Among staking providers, HTX and Staked.us exhibited substantial reductions.