While recent headlines may have captured Binance and CZ’s legal troubles and increased regulatory scrutiny on centralized exchanges, there has been a notable shift in the dynamics of the ethereum staking pool.
With the increase in the number of validators leaving the pool, eth issuance has seen a slowdown in its growth rate. This subsequently resulted in the first reduction in the betting pool balance since the Shanghai update.
Validator Exodus
According to blockchain intelligence platform Glassnode, there are currently an increasing number of validators coming out the ethereum staking pool.
The introduction of staking withdrawals in Shanghai acted as a catalyst, leading to an increase in the number of validators leaving the staking pool, claiming rewards, and reorganizing their staking provider and settings. Outbound events averaged 309 validators per day during this time.
The report also noted a gradual increase in outbound events since early October, eventually reaching an average of 1,018 validators per day. This rally aligned with the recent bullish trend of spot prices in the crypto markets.
As a result, the total effective balance, which represents the eth in the stake pool actively participating in the proof-of-stake consensus, has slowed its growth and is now experiencing the first drop since the Shanghai update.
“The past few weeks have seen a notable shift in the dynamics of the ethereum staking pool, as the number of validators exiting the pool begins to increase. “This has resulted in a slowdown in the growth rate of eth issuance and the first reduction in the staking pool balance since the Shanghai update.”
Most of the outgoing validators have voluntarily left over the past eight weeks. Meaning that the bettors independently decided to exit the staking pool instead of clipping, which is a penalty applied to validators who violate the protocol rules.
During the same period, there were only two outage cases, one of them significant, which involved the outage of 100 newly onboarded validators who were penalized for simultaneously signing two different blocks within the network.
What is driving this investor behavior?
Since October, Glassnode claimed that centralized exchanges, particularly Kraken and Coinbase, have consistently led to staking withdrawals. Meanwhile, liquid betting providers, dominated by Lido, have seen a modest increase in bets withdrawn.
Investor behavior driving these trends includes a shift in betting settings, potentially driven by regulatory concerns, and a potential rotation of capital from CEXs to liquid betting providers or safer assets like US Treasuries. USA
Furthermore, Lido stood out among liquid betting providers for its outputs. Lido’s dominance is further highlighted by a net increase in its staked balance of 468k eth. In contrast, Coinbase and Binance showed net increases among CEXs, while Kraken saw a -19.4k eth decline. Among betting providers, HTX and Staked.us showed substantial reductions.
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