A significant number of institutional investors, approximately 70%, are actively participating in Ethereum (ETH) staking, with over 60% of them utilizing third-party staking platforms.
Ethereum Staking Landscape Overview
A recent report by Blockworks Research reveals that 69.2% of institutional investors holding Ethereum are engaged in staking the platform’s native ETH token. Among them, 78.8% are investment firms and asset managers.
Interestingly, more than one-fifth of institutional investors, representing 22.6% of respondents, have ETH or an ETH-based liquid staking token (LST) constituting over 60% of their total portfolio allocation.
The Ethereum staking landscape has undergone a significant transformation following the network’s shift from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism during the Merge upgrade.
Currently, there are almost 1.1 million on-chain validators staking 34.8 million ETH on the network. Post the Merge, participants could only withdraw their ETH after the Shapella upgrade in April 2023.
Following the initial phase of ETH withdrawals, there has been a consistent influx, indicating a strong demand for ETH staking. Currently, 28.9% of the total ETH supply is staked, making it the network with the highest dollar value of staked assets, valued at over $115 billion.
It is important to note that the annualized yield from staking ETH stands at around 3%. As more ETH gets staked, the yield decreases proportionally. However, network validators can earn additional ETH through priority transaction fees during periods of high network activity.
Third-Party Staking Dominates Solo Staking
Individuals can engage in ETH staking either as solo stakers or by delegating their ETH to third-party staking platforms.
Solo staking offers full control over ETH but requires a high entry barrier of staking a minimum of 32 ETH, valued at over $83,000 at the current market price of $2,616.
On the other hand, stakers can participate with as little as 0.1 ETH through third-party platforms but must compromise on some control over their assets. Ethereum co-founder Vitalik Buterin has recently emphasized the need to lower entry requirements for ETH solo stakers to enhance network decentralization.
Presently, about 18.7% of stakers are solo stakers. However, the trend indicates a decline in solo staking popularity due to the high entry threshold and the capital inefficiency of locked funds. The report elaborates:
Once ETH is locked in staking, it cannot be utilized for other financial activities in the DeFi ecosystem. This limits the ability to provide liquidity to various DeFi protocols or use ETH as collateral for loans. Solo stakers face an opportunity cost and must consider dynamic network reward rates to maximize their yield potential.
Consequently, third-party staking solutions are gaining popularity among ETH stakers. However, concerns arise regarding network centralization with such platforms, mainly dominated by centralized exchanges and liquid staking protocols.
Nearly 48.6% of ETH stakers utilizing third-party platforms opt for integrated platforms like Coinbase, Binance, Kiln, among others.
The report highlights key factors driving institutional investors towards third-party platforms, including platform reputation, supported networks, pricing, onboarding simplicity, competitive costs, and platform expertise.
Evolving Ethereum Staking Ecosystem
Despite the growth in the Ethereum staking ecosystem, ETH’s price performance has not fully reflected this progress. ETH has been trailing behind BTC for a considerable period, only recently gaining momentum following the US Federal Reserve’s decision to lower interest rates.
Nevertheless, certain crypto research firms remain optimistic about ETH’s potential resurgence against BTC later this year. At the time of writing, ETH is trading at $2,616, marking a 0.8% increase in the past 24 hours.
Featured image from Unsplash, Charts from Blockworks Research and Tradingview.com