Nansen Analyst Shares Insights on Ethereum Withdrawal Mechanisms
According to a recent tweet by Martin Lee, an analytics expert at Nansen, Ethereum’s withdrawal mechanisms are currently a hot topic of discussion. In his tweet, he provided a brief introduction to Ethereum’s withdrawal mechanisms, how to make sense of withdrawal data, key metrics to look into, and misconceptions to avoid.
Lee primarily referenced Nansen’s data, but he also shared alternative sources where appropriate. He gave a quick rundown on how ETH staking and withdrawals function, highlighting the fact that unlike other Proof-of-Stake (PoS) systems, ETH validators are fixed at 32 ETH (+accrued rewards) and only earn yield on 32 ETH.
Lee also explained that there are two types of withdrawals: partial and full. Partial withdrawals are withdrawals of accrued rewards that happen automatically every 2-5 days, while full withdrawals are withdrawals of the entire 32 ETH balance, essentially shutting down the validator. Full withdrawals do not happen automatically. In order to enable withdrawals, validators need to set their withdrawal credential prefixes to 0x01 from 0x00.
1/ A brief intro on Ethereum withdrawal mechanisms, how to make sense of withdrawal data, key metrics to look into, and misconceptions to avoid.
Primarily referencing @nansen_ai data but will share alternative sources whenever appropriate as well. pic.twitter.com/5I94dG8SKX
— Martin Lee | Nansen 🧭 (@themlpx) April 16, 2023
Lee then went on to discuss the fact that on the launch of Shanghai, only around 40% of all validators had their credentials set to 0x01, but that number has now risen to 82.3% and will eventually hit 100%. He explained that this increase does not mean that everyone wants to exit, but rather that every validator would want their accrued rewards to be withdrawn since they’re only earning yield on the principal 32 ETH.
Lee also addressed some common misconceptions, such as the idea that ETH withdrawn thus far is heavily affected by Kraken or that Lido validators are mass exiting. He clarified that Kraken hasn’t entered the withdrawn list yet, likely due to their validators still being in the queue/waiting process. He also explained that most of the withdrawals have been rewards, so no, Lido validators are not mass exiting. They’re just drawing rewards.
In terms of where the ETH is going, Lee acknowledged that there currently isn’t a dashboard that tracks this, but seeing the rise in ETH staked in Lido points is an indicator of one major area for now.
Lee also cautioned against jumping to conclusions too early, such as assuming that Kraken unlocks will lead to mass selling pressure. He pointed out that Kraken being forced to unwind their staking practice does not necessarily mean selling, and that what users do with the ETH is yet to be seen. He also noted that forecasting based on current withdrawal data is kind of pointless and that it makes more sense to do comparables with other PoS Layer 1s.
Lee concluded by stating his hypothesis that it’s more likely we’ll see the percentage of ETH staked rise to comparable levels with other Layer 1s. He believes that Shanghai was a much-needed upgrade for the chain and whatever the direction in the short term, it’s long-term beneficial for ETH.
Overall, Lee’s tweet provides valuable insights into the current state of Ethereum’s withdrawal mechanisms and helps to dispel some common misconceptions. He also provides useful resources for those who want to learn more about the topic.
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