On-chain data from Glassnode shows that Ethereum locked in the Beacon Chain contract currently has an unrealized loss of $4.7 billion.
Ethereum locked in the Beacon Chain is carrying a lot of losses
According to data from the on-chain analysis firm glass node, Beacon Chain was posting a maximum unrealized loss of $16 billion during the LUNA crash. “Beacon Chain” was the name of the blockchain that was launched in December 2020 with the goal of testing an ETH proof-of-stake (PoS) consensus mechanism.
The Beacon Chain merged with the mainnet in September of last year, in an event known as the Merge. This means that the entire ETH network now runs on PoS.
In a PoS system, investors can choose to deposit a certain minimum amount of the asset (32 ETH in the case of Ethereum) into a contract to become a validator and earn rewards for it. This is called gambling.
So far, the ETH staking contract only supports deposits; withdrawals will open for the first time tomorrow when the long-awaited Shanghai update takes place.
Because withdrawals are not open, the staking contract has a large amount of idle supply at the moment. To see if this blocked supply is making a profit or a loss, the “unrealized profit/loss” indicator is used.
This metric measures the net amount of profit or loss that a certain segment of investors currently has. In the present case, the holders who have locked their coins in the Ethereum 2.0 contract are the segment of interest.
When the value of this indicator is positive, it means that the holders in question as a whole currently have some unrealized gains. On the other hand, negative values suggest that unrealized losses dominate investors’ positions at the moment.
Now, here is a chart showing the trend in unrealized profit/loss for the Ethereum locked in the participation contract:
Looks like the metric has had an underwater value for quite a while now | Source: Glassnode on Twitter
As shown in the chart above, the unrealized gain/loss of the Ethereum Beacon Chain contract had a positive value during the 2021 bull run and the first few months of 2022, but with the decline that followed the LUNA crash, the value of the indicator collapsed to deeply negative values.
At its peak red value at the time, ETH 2.0 locked tokens had a combined loss of $16 billion. For the remainder of 2022, the value of the metric continued to hover near these highly negative levels.
However, with the start of this year’s rally, the losses these coins are carrying have eased a bit, but are still significantly under water. Currently, this segment of the Ethereum market has a net unrealized loss of $4.7 billion.
The graph also breaks down what type of depositors are contributing to the amount of these losses. It seems that the largest depositors (with amounts equivalent to more than 500 validators) bear around 76% of these losses.
The fact that these coins are so underwater means that when the Shanghai update goes live tomorrow, a large amount of loss is possible in the Ethereum market if investors choose to unlock their coins.
ETH price
As of this writing, Ethereum is trading around $1,900, up 3% in the past week.
ETH has seen some rise during the past day | Source: ETHUSD on TradingView
Featured Image of Kanchanara on Unsplash.com, Charts from TradingView.com, Glassnode.com
