An Upgrade to Slow Down Ethereum Staking
Developers of the Ethereum ecosystem have announced that an upcoming upgrade, known as Ethereum Cancun-Deneb (Dencun), will introduce a mechanism to adjust the network staking rate. The upgrade, scheduled for late October 2023, is divided into two parts: Deneb, focusing on the Consensus Layer, and Cancun, targeting the Execution Layer. As part of this upgrade, a proposal called EIP-7514 will modify the ‘churn limit’ function to set an upper bound. The churn limit controls the number of validators allowed to join or exit the network within a specific timeframe. By reducing the churn limit, developers aim to address the economic and technical consequences of liquid staking more effectively.
βThis proposal aims to mitigate the negative externalities of very high level of total ETH supply staked before a proper solution is implemented.β
The core developers believe that slowing down the growth rate of staked ETH is necessary. Core developer Tim Beiko explains that this change will slow down the percentage increase of ETH stake in the worst-case scenario. Dankrad Feist, another developer, highlights that lowering the churn limit will provide more time for research and implementation of solutions related to liquid staking.
ETH Staking Outlook
The Ethereum Cancun-Deneb upgrade also includes EIP-4844, which introduces Proto-Danksharding as a transitional phase towards full Danksharding. This feature is expected to reduce gas fees and increase transaction throughput by utilizing data “blobs.” Since April, the validator activation queue has consistently remained full after ETH withdrawals were introduced.
Liquid staking has gained significant popularity in the Ethereum ecosystem, with Lido dominating as it holds approximately one-third of all staked ETH. According to Beaconcha.in, the current total amount of ETH staked is 25.4 million, valued at around $41.5 billion.
Hot Take: Ethereum Upgrade Aims to Address Staking Concerns
The upcoming Ethereum Cancun-Deneb upgrade introduces changes to the network’s staking rate and churn limit to mitigate the potential negative effects of high levels of staked ETH. Developers recognize the need for a slower growth rate in staked ETH to allow time for research and implementation of solutions related to liquid staking. The upgrade also includes features like Proto-Danksharding, which aims to reduce gas fees and increase transaction throughput. With the popularity of liquid staking on the rise, it is crucial to address these concerns proactively to ensure the stability and sustainability of the Ethereum ecosystem.
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