Analysts record first post-Shanghai decline in ETH staking

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Since October, Ethereum has seen a rise in exiting validators, reducing the number of ETH locked in staking and slowing issuance. Analysts at Glassnode noted this.

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The growth rate of the #Ethereum validator set has slowed in recent weeks as an increasing number of validators voluntarily exit, slowing the rate of ETH issuance.

Alongside increasing ETH burnt via EIP1559 due to growing network activity, the ETH supply has turned… pic.twitter.com/xMrQRe7opO

— glassnode (@glassnode) November 28, 2023

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After the activation of Shanghai, there was a surge of exiting validators from staking. The latter were collecting accrued rewards and could switch service providers.

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From May through September, the daily count of such participants averaged 380. Since early October, this figure has risen to 1,018 (peaking at 2,925). Analysts linked the surge to the rise in Ethereum’s price.

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Against that backdrop, the daily growth rate of ETH in staking slowed from 2% in May to roughly 0.1–1% since mid-October. In recent days it has turned negative for the first time since Shanghai’s activation.

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Validator exits were largely voluntary. Over the period there were only two slashing events (20 and 100 validators at Lido Finance and Bitcoin Suisse, respectively).

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Analysts determined that “exiting” validators are primarily linked to CEX (here dominated by Kraken and Coinbase) and LSD-providers (Lido Finance). Analysts explained that the mentioned players also lead inflows into staking.

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Analysts proposed four explanations for this behavior:

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• – Shift assets from CEX to LSD providers (perhaps due to regulatory uncertainty);

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• – Reorientation towards safer assets such as US Treasuries as their yields rise;

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• – Preference for liquidity in anticipation of an uptrend, rather than locking assets in staking.

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In terms of net changes, Lido Finance continued to strengthen its dominance — after Shanghai the protocol attracted 391 000 ETH. Negative momentum among CEX was recorded at HTX (-44 000 ETH) and Kraken (-19 400 ETH).

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The seven-day moving average of Ethereum issuance, which depends on the number of active validators, slowed to about 0.5%. In recent days the metric has turned negative.

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Against a backdrop of rising network activity, fee burning under EIP-1559 surpassed issuance. As a result, network inflation gave way to deflation. If on October 12 daily burn was 899 ETH, by November 9 the figure jumped to 5,368 ETH. This was accompanied by an increase in gas costs by 265%.

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Analysts noted that the growth in network activity in recent weeks was not linked to DeFi and NFT transactions — over the last four months their counts fell by 57% and 3%, respectively.

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This time the driver was transfers of tokens and stablecoins. Over the last three months, the figures rose by 8.2% and 19%, respectively.

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\u201cThis suggests that as confidence in the strength of the market grows, there is potential for a mild rotation of capital into longer-term assets,\u201d explained the specialists.

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Since the London hard fork, ETH has shifted from pure inflation to a balance and deflation. From August to October, lower network activity turned the supply growth into a positive rate again.

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In recent weeks, as both the slowdown in issuance and the rise in burn volumes continued, the number of coins in circulation has begun to shrink again.

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Earlier, analysts assessed the impact of liquid staking by Lido on Ethereum.

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Earlier, the head of research at Standard Chartered, Jeffrey Kendrick predicted the price rise of the second-largest cryptocurrency to $8000 by the end of 2026.

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