The Ethereum blockchain validator queue has cleared for the first time since the Shanghai upgrade in May, according to a research report from Coinbase. The drop suggests that investor demand for ether (ETH) staking may stabilize.
Validators play a crucial role in verifying transactions on the Ethereum blockchain by committing ether in exchange for rewards. The Shanghai upgrade introduced the ability to withdraw staked ether for the first time.
Ethereum Staking Yields Decline to 3.5%
As validator participation peaked over recent months, staking yields have declined from over 5% to 3.5%, according to the report. The analysts noted that the yield on staked ether sets a benchmark for alternative crypto investments, providing a foundational aspect for the crypto ecosystem.
Coinbase anticipates that if network activity and transaction fees remain stable, the staking yield will likely remain steady now that the growth of validators has slowed. Activity on the Ethereum mainnet remained consistent in the third quarter, with an increase in total roll-up transactions.
The report also highlighted that with no major Ethereum protocol upgrades until Dencun, which is expected in the first half of 2024, no significant technical catalysts are expected to impact on-chain activity unless there are major new protocols or significant hacks.
The Dencun upgrade will incorporate five Ethereum Improvement Proposals (EIPs) to provide additional data storage and reduce fees on the blockchain.
Staking Demand Drops Sharply
Some market participants suggest that the decreasing waiting times may signify a decline in demand for staking. It’s worth noting that the demand for ETH staking surged when the Shanghai upgrade launched in April, with institutional investors depositing three times the amount compared to the previous month.
While the demand for staking ETH seems to have tapered off, the number of active validators has increased. Current data indicates around 857,000 active validators on the network, with approximately 22% of the cryptocurrency’s supply staked.
The counterintuitive numbers could be due to the growing popularity of liquid staking platforms such as Lido and Rocket Pool, which collectively hold a Total Value Locked (TVL) of $15 billion.
JPMorgan’s analysts suggest that Ethereum’s performance post the Shanghai upgrade could have been influenced by external factors within the crypto environment. These include bearish trends in the overall crypto market, setbacks in projects like Terra and FTX, and regulatory actions in the United States. These events have led to uncertainty and caution among investors and users.