Ethereum Staking Is Gradually Losing Its Appeal: Here’s Why
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Ethereum Staking Decline
Ethereum (ETH) staking, once a flourishing practice, has experienced a significant decline, with the queue for validators hitting a remarkable low of zero. This trend contrasts the peak observed earlier in June this year when 96,508 validators eagerly awaited their turn in the staking queue.
The waning interest in Ethereum staking prompts an examination of its underlying causes. A crucial factor to consider is large holders’ continued accumulation of Ethereum.
Addresses holding at least one million ETH now comprise 32.3% of the token’s total supply, a figure not seen since 2016. This robust accumulation indicates sustained interest in the cryptocurrency despite declining staking activity.
Mechanics Of Ethereum Staking
An analysis of the mechanics of Ethereum staking reveals that validators play a crucial role in maintaining the network. They oversee transaction history, validate new transfers, and add fresh blocks.
Notably, Ethereum compels potential validators to stake 32 ETH, making it an endeavor within reach of only a limited number of cryptocurrency investors. Meanwhile, the queue for potential validators dropped to zero for the first time on October 16, signifying a lack of interest in staking that day.
The queue stems from technical constraints within the staking process, limiting simultaneous input and output operations to 3,600 validators daily. Accordingly, the average waiting time for staking has also decreased significantly.
Once at a peak of 45 days, investors now wait mere minutes before engaging in staking. Consequently, the profitability of staking, measured by the average annual percentage rate (APR), has also hit a bottom.
It plummeted from 5.2% in June 2023 to 3.5%, indicating that it has become a less lucrative venture for stakers. Meanwhile, the co-founder of Stader Labs, a liquid staking platform, attributes this downward trajectory to broader market inactivity, a prolonged decline in ETH value, and subsequent waning interest from potential investors.
This sentiment is further supported by the stagnation of staked Ethereum (stETH) tokens via the Lido platform, which allows investors to stake any amount of ETH, even below the 32-unit threshold. This suggests that even smaller investors are now hesitant to stake their assets.
Lido DAO’s Proposal For Tiered Rewards
Meanwhile, the Lido DAO is currently deciding on a proposal to implement tiered incentives for those staking ETH. The move aims to foster partnerships with Web3 communities and replace the existing reward structure.
It is worth noting that Lido controls almost 32% of the total staked ETH, exceeding the collective staking on prominent platforms such as Binance, Coinbase, and Kraken. To expand its market share, the Lido DAO proposes that potential participants stake 2,500 ETH with Lido over 12-24 months.
The aim is to attract a wider range of stakeholders, including wallets, institutions, crypto services, neobanks, and custody services. Currently, stakers receive 90% of generated rewards, with the remaining 10% split between node operators and the Lido DAO Treasury.
The new proposal allocates a portion of the DAO’s 5% share to significant stakers. Rewards will vary based on commitment size, ranging from 30% for up to 50,000 ETH staked to half of the DAO’s share for stakers committing 700,000 ETH or more.
Additionally, the proposal grants authority to the Lido DAO to implement a mechanism that reduces rewards to deter frequent cycle staking and promote sustainable expansion. The “Rewards Share Committee” will supervise this initiative, including the onboarding process and disbursement of rewards. With over 27 million LDOs deployed since the voting began, it indicates that DAO members support these proposed changes.
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