For the first time in about six months, the balance in Ethereum’s staking mechanism has turned. While Ether has mainly been prepared to leave the network in recent months, considerably more ETH is now in the queue to be secured as a validator.
What exactly does such a strike queue mean?
According to data from the Ethereum Validator Queue, there are currently more than 745,000 Ethereum in the so-called entry queue, with a waiting time of almost thirteen days. On the other hand, there is an exit queue of approximately 360,000 Ether, with a waiting period of eight days. In other words, almost twice as much ETH is waiting to enter the network than to leave it.
Ethereum has been working with a proof-of-stake model since 2022. Validators must pin their Ether to process transactions and secure the network. This locking (staking) does not happen immediately: the network allows new validators to be admitted in a controlled manner via a queue. The same goes for getting out. Anyone who wants to unstake their ETH and make it freely available again will also end up in an exit queue.
A long exit queue is often seen as a signal that validators want to free up their Ether, for example to sell or deploy elsewhere. A growing entry queue actually indicates a willingness to stake ETH for a longer period of time, which is usually interpreted as confidence in the network or the returns from staking.
Turnaround after months of outflow
The turnaround happened last weekend, when both queues were around 460,000 Ether. After that, the entry queue continued to grow rapidly, while the exit queue continued to shrink. Some analysts even expect that exit queue to be completely empty at the beginning of January.
According to Abdul, head of DeFi at layer-1 project Monad, the exit queue acts as a kind of preview of potential selling pressure. He estimates that about 5 percent of total Ether supply has been moved via unstaking since July, including a large-scale exit by staking service provider Kiln in September. Kiln then decided to phase out all its validators in an orderly manner after a security incident at partner platform SwissBorg.
Role of large treasury companies
A significant part of the released Ether appears to have been bought by large digital treasury companies. These are listed parties that hold Ethereum on their balance sheets. Abdul states that approximately 70 percent of the recently unstaked ETH has been absorbed by BitMine, which now owns several percent of the total Ether supply.
On-chain data supports that view. Blockchain analytics platform Lookonchain reported that BitMine staked more than 340,000 Ether in two days, with a market value of around $1 billion. Such parties not only buy Ether, but also actively lock it into strike, further limiting its supply in the short term.
Technical upgrades play a role
Not only large buyers seem to explain the turnaround. Technical improvements to the network may also play a role. The recent Pectra upgrade has increased the ease of staking, including higher limits per validator and smoother reallocation of large ETH balances. This makes it more attractive for institutional parties and funds to stake larger amounts of Ether at once.
In addition, some analysts point to a phasing out of risky DeFi constructions. When lending rates on platforms such as Aave rose, so-called stETH loops, leverage strategies around staked Ether, were forcibly phased out. This previously led to outflow, but now seems to have largely been processed.
Although previous moments when the entry queue became larger than the exit queue coincided with Ether price increases, analysts warn against jumping to conclusions. Staking behavior mainly says something about supply and network confidence, not automatically about the Ethereum price in the short term.
It is clear that the selling pressure from unstaking is decreasing for the time being. If the exit queue actually goes towards zero, a predictable source of extra supply disappears. At the same time, more Ether is locked up for longer periods of time, which reduces liquidity.
Source: https://newsbit.nl/ethereum-staking-explodeert-instroom-nu-dubbel-zo-groot-als-uitstroom/
