Update Oct. 8, 12:17 p.m. UTC: This article has been revised to include insights from Nansen’s Nicolai Sondergaard and RedStone’s Marcin Kazmierczak.
Update Oct. 8, 12:45 p.m. UTC: This article has been revised to include a statement from Falcon Finance’s Andrei Grachev.
Ethereum experienced its biggest validator departure on record this week, with over 2.4 million Ether valued at more than $10 billion pending withdrawal from its proof-of-stake network, though institutional players are offsetting much of this in the validator entry queue.
Ethereum’s exit queue exceeded 2.4 million Ether (ETH), equating to over $10 billion on Wednesday. The increase in exits has pushed the validator queue time to over 41 days and 21 hours, as reported by blockchain data from ValidatorQueue.com.
Validators play a crucial role in the Ethereum network by adding new blocks and validating transactions.
“Large withdrawals typically indicate that tokens may be sold, but this does not automatically lead to token sales,” stated Nicolai Sondergaard, research analyst at crypto intelligence platform Nansen, adding that “this alone should not raise concern.”
While the $10 billion withdrawal queue is substantial, validators are likely “consolidating from 32 ETH to 2,048 ETH stakes for better operational efficiency,” according to Marcin Kazmierczak, co-founder of blockchain oracle firm RedStone.
This move includes increased inflows into liquid staking protocols for enhanced “capital efficiency,” he informed Cointelegraph, adding:
“A significant portion of withdrawn ETH is redeployed within DeFi, rather than being sold.”
“The 44+ day withdrawal wait creates a natural barrier that prevents supply shocks,” he explained, noting that Ether’s daily trading volume of $50 billion is still five times greater than the validator queue.
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Ethereum’s expanding validator queue may also indicate a “rising demand for native yield,” according to Andrei Grachev, founding partner at synthetic dollar protocol Falcon Finance.
“Widespread selling is unlikely since most stakers are focused on on-chain returns, not exit liquidity,” as Ether transitions from a speculative asset to a “yield-bearing layer of capital,” he remarked.
$10 billion Ethereum exit queue raises concerns about sell pressure
The increase in pending withdrawals has renewed worries about potential sell pressures for Ether holders.
While this does not imply that all validators are looking to take profits, a considerable portion of the $10 billion might be sold, especially given that Ether’s price has surged 83% over the past year, according to Cointelegraph’s price index.
Adding to the selling pressure worries, the validator exit queue is roughly five times larger than the Ethereum entry queue, which currently has over 490,000 Ether ready to be staked, with a wait time of eight days and 12 hours.
While short-term sell pressure concerns prevail, the $10 billion withdrawal does not compromise the Ethereum network’s stability, which still maintains over 1 million active validators staking 35.6 million Ether, or 29.4% of the entire supply.
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This update follows Grayscale’s staking of $150 million in Ether on Tuesday, making it the first US-based crypto fund issuer to introduce staking for its Ether exchange-traded products, allowing for passive income generation for its funds.
On Wednesday, Grayscale added another 272,000 Ether worth $1.21 billion to the staking queue, indicating that the firm now represents “the majority of coins currently pending staking activation,” according to on-chain analyst EmberCN.
Despite the increasing validator exits, Ether’s upward momentum continues to be fueled by institutional inflows through exchange-traded funds (ETFs) and corporate treasuries, according to Iliya Kalchev, dispatch analyst at digital asset platform Nexo:
“Institutional and corporate treasuries now hold over 10% of ETH’s total supply, with October ETF inflows having already surpassed $620 million.”
“The data illustrate Ethereum’s progression into a yield-bearing, institutionally acknowledged asset used for both infrastructure and collateral purposes,” he added.
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