Ethereum (ETH), the globe’s second-most dominant cryptocurrency, is currently witnessing a substantial decline in the demand for staking, resulting in the thinning out of its previously jam-packed validator lineup.
With Ethereum’s shift towards a proof-of-stake (PoS) system, exemplified by the “Shapella” update in April, there was a notable spike in staking enthusiasm. At its height in early June, an impressive 96,000 validators were on standby to become a part of the network.
However, recent figures indicate a stark drop, with a mere 257 validators currently in line – the smallest number observed since the move to PoS.
This decline in queue volume has consequently led to a marked shortening in the waiting period to attain validator status, now averaging less than five hours.
Several factors behind reduction in staking demand
The diminishing appetite for staking Ethereum is influenced by multiple determinants, as highlighted by analysts who spoke to CoinDesk.
A significant factor is the reduced staking rewards. Earlier this year, rewards ranged between 5% to 6%, but they have now dwindled to roughly 3.5%. This dip is mainly attributable to subdued network operations leading to lower fee-related income and a swelling pool of participants in staking.
In practical terms, the yield from Ethereum staking has turned comparatively less appealing than certain conventional investment avenues. For instance, money market funds and U.S. Treasury bills currently provide returns that surpass 5%, making them more enticing for potential investors.
The staking ratio of Ethereum, reflecting the percentage of tokens staked against its total circulating supply, has seen growth from 15% in April to more than 22%.
Yet, when placed alongside other PoS-based blockchains such as Solana (SOL), Cardano (ADA), and Avalanche (AVAX), Ethereum’s ratio appears subdued.
One contributing factor to this phenomenon is the distinct role of Ethereum’s native token, ETH. It’s predominantly utilized as a “network resource”, serving various functional purposes within the ecosystem. Additionally, as one analyst pointed out, Ethereum boasts “a more dispersed ownership structure” in comparison to its counterparts. This widespread distribution of ETH holdings implies a diverse range of stakeholders, which may influence the staking behaviors and patterns within the Ethereum community.