Ethereum Staking Inflow Declining, but Active Validators Remain High
The number of Ethereum (ETH) holders staking their coins, which involves locking them in smart contracts for earning rewards, has been decreasing. According to data from CryptoQuant, the staking inflow total dropped from 404,704 on June 1 to 30,656 as of August 23.
Steady Increase and Shapella Upgrade
Between April 3 and June 1, the staking inflow total experienced significant growth, rising from 5,952 to 404,704. This surge was largely attributed to the activation of the Shapella upgrade on April 12, which allowed Ethereum validators to withdraw their coins for the first time since December 2021.
The Shapella upgrade gave validators the choice to continue staking or exit. Despite the decline in staking inflow, the number of validators has actually increased from around 568,000 on April 12 to over 913,000 by early September 2023, according to Dune Analytics.
Ethereum’s Shift to Proof-of-Stake
In September 2022, Ethereum transitioned from a proof-of-work consensus protocol to a proof-of-stake consensus. The network now relies on validators instead of miners. Currently, there are over 813,105 active validators who have locked more than 26 million ETH in total.
Potential Centralization Concerns
While the significant decrease in staking count may raise concerns about Ethereum’s decentralization, it doesn’t necessarily indicate vulnerabilities or flaws in the network. The staking metric only tracks ETH holders who choose to stake and earn rewards but doesn’t provide information on those who withdraw during this period.
However, a sharp increase in the number of unlocked ETH or validators deactivating their nodes could lead to centralization concerns. This is particularly relevant as liquidity-staking providers like Lido Finance gain popularity after the Shapella upgrade, attracting large amounts of ETH from holders seeking staking rewards.
Hot Take: Ethereum Staking Decline Requires Monitoring
While the decline in Ethereum staking inflow may not immediately impact the network’s security or decentralization, it does raise important questions about the future of staking on the platform. It is crucial to monitor whether this trend continues and assess its potential implications for Ethereum’s overall ecosystem. As more holders opt to unlock their ETH or choose not to validate transactions, there may be a need to address centralization concerns and ensure a healthy balance between staking participation and network security.
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