There is currently $36B of ETH staked, generating tens of millions of dollars of revenue for validators every month.
This report will cover:
- Impact of the Shapella upgrade on the ETH staking industry
- Key insights into withdrawal and deposit flows
- Emerging products that could grow into market leaders
Credit
Huge thanks to Archwizards Rob T and hildobby for helping bring this report to life! Check out Rated and hildobby's staking dashboard for the latest data on Ethereum’s validator network.
Overview
In Ethereum’s Proof-of-Stake (PoS) system, each validator stakes 32ETH. Validators get randomly selected to process new blocks. Validators earn rewards for processing blocks. If a validator behaves maliciously, its stake is slashed.
On 12th April, Ethereum had its Shapella upgrade. As a result of that upgrade, the rewards that stakers earn are automatically withdrawn every cycle (if they have the right credentials). Withdrawals are processed at a rate of 16 validators per block so if all active validators converted to withdrawal-eligible credentials (47% have converted so far) it would take five days to complete a cycle.
The upgrade also enabled stakers to withdraw their principal balance of 32ETH if they wanted to. There is an exit queue for validators that want to do this. Currently, it would take 17 days to exit and withdraw fully.
Since the upgrade, ~1M ETH ($2B at today’s price) has been withdrawn.
80% of the ETH withdrawn has been rewards.
20% of the ETH withdrawn has been the principal of exiting validators.
Note on Withdrawals Data
Looking at the withdrawals that have already occurred doesn't give the full picture on exiting validators.
According to Parsec, the total stake of validators waiting in the queue to withdraw their principal is ~640k ETH. That is 3X all the principal withdrawals that have occurred so far.
What's Next for Withdrawal Flows?
The first cycles of withdrawals will be higher than the average future cycle will be because:
1/ In these first few cycles, rewards that accumulated for 2+ years (since the launch of the Beaconchain) are being withdrawn.
Once the backlog of pre-Shapella rewards is withdrawn, rewards withdrawals will only consist of what accumulated in the past cycle.
2/ Centralised Exchanges are exiting. Kraken is ending staking for all US clients for regulatory reasons. Kraken accounts for 44% of the principal ETH that has been withdrawn. Other exchanges have customers who want to withdraw so they will also have to perform some exits.
Exchange reshuffling will take a while to stabilize because the exit queue slows things down. Once that reshuffling is done, big centralised parties will have less exit flow.
What's Next for Deposit Flows?
I believe staking deposit flows may increase because:
1/ Staking has been derisked. Anyone who wanted to stake ETH but was waiting to see if withdrawals would be successful will be ready to participate now.
2/ Distributed Validator Technology (DVT) will allow node operators who don't have 32 ETH to run a validator by themselves to collaborate to run validators and participate in bigger staking networks like Lido V2 and RocketPool Minipools.
Emerging Products
1/ Rated
Rated has the most extensive dataset on Ethereum’s validator network. They provide APIs, dashboards and validators ratings. I believe Rated will be the leading data provider of the multi-billion dollar ETH staking industry.
2/ DVT from RocketPool, SSV, and Obol
RocketPool, SSV and Obol are building DVT networks that allow sub-32ETH nodes to participate in validating, improve redundancy for validators and lower slashing risk.
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