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ETH Validators Flock to Join Staking Ecosystem Following Turbulent January 2024

The number of Ethereum (ETH) validators waiting to join the staking network has reached a new all-time high, according to data from blockchain and AI researcher Adriano Feria. This indicates a strong and growing interest in securing the second-largest cryptocurrency by market capitalization, despite the recent exit of a major staking service provider.

What is Ethereum Staking?

Ethereum staking is the process of locking up a certain amount of ETH in a smart contract to participate in the validation of transactions and the creation of new blocks on the Ethereum network. Validators who stake their ETH earn rewards in the form of new ETH and transaction fees. Staking is a key component of Ethereum 2.0, the long-awaited upgrade that aims to transition Ethereum from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) one. PoS is expected to improve the scalability, security, and sustainability of Ethereum.

Why is Staking Demand Rising?

According to Feria, the number of validators in the activation queue, or those who have deposited 32 ETH (worth about $69,000 at the time of writing) but have not yet been assigned to a staking slot, has reached over 200,000 as of February 4, 2024. This is the highest level since late October 2023, when the queue was also over 200,000. The queue size fluctuates depending on the rate of new deposits and activations, which are limited by the protocol to prevent sudden changes in the validator set.

The rising demand for staking suggests that more ETH holders are willing to lock up their coins for a long-term investment, as staked ETH cannot be withdrawn until the merge of Ethereum 1.0 and 2.0, which is expected to happen later this year. Staking also offers an attractive annualized return of about 6%, which is higher than most traditional savings accounts and some other crypto lending platforms.

Source: Feria

How Did Celsius Affect Staking?

The surge in staking demand comes after a major disruption in the staking ecosystem in January 2024, when Celsius, a large crypto lending platform that offered staking services to its users, decided to withdraw its entire stake of over 500,000 ETH (worth about $1.1 billion at the time) as part of its bankruptcy procedure. Celsius had filed for bankruptcy in December 2023, after suffering a massive hack that resulted in the loss of over $200 million worth of crypto assets.

The withdrawal of Celsius’ stake caused a spike in the exit queue, or those validators who have requested to stop staking and get their ETH back. The exit queue jumped to over 16,000 validators, which was the highest level since the launch of Ethereum 2.0 in December 2020. However, the exit queue was cleared out quickly, as the protocol allows up to 900 validators to exit per day. As of February 4, 2024, the exit queue has dropped to less than 1,000 validators, according to the Validator Queue tracker.

What is the Future of Staking?

The Ethereum staking network is approaching a significant milestone of 1 million validators, which would make it one of the largest and most decentralized PoS networks in the world. As of February 4, 2024, there are over 980,000 active validators on Ethereum 2.0, according to Beaconcha.in, a staking analytics platform. The total amount of ETH staked on the network is over 31.5 million, which represents about 27% of the total ETH supply.

The future of staking depends largely on the progress of Ethereum 2.0, which is still undergoing development and testing. The next major upgrade, dubbed Altair, is expected to be deployed in the first quarter of 2024, and will introduce some enhancements and optimizations to the staking network. The most anticipated upgrade, however, is the merge, which will mark the end of Ethereum 1.0 and the full transition to Ethereum 2.0. The merge will enable staked ETH to be transferred, traded, and used for smart contracts, as well as allow validators to withdraw their stake if they wish. The merge is currently scheduled for the third quarter of 2024, but could be subject to delays or changes depending on the technical and social challenges involved.

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