Update Oct. 8, 12:17 p.m. UTC: This article has been revised to incorporate statements 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 remark from Falcon Finance’s Andrei Grachev.
Ethereum experienced its highest validator exit ever this week, with over 2.4 million Ether valued at more than $10 billion waiting for withdrawal from its proof-of-stake network, but institutional players are largely offsetting this in the validator entry queue.
On Wednesday, Ethereum’s exit queue exceeded 2.4 million Ether (ETH), worth over $10 billion. The increase in exits has pushed the validator queue time to over 41 days and 21 hours, according to blockchain data from ValidatorQueue.com.
Validators are tasked with creating new blocks and confirming transactions on the Ethereum network, serving a vital function in its operation.
“While large withdrawals may indicate a likelihood of tokens being sold, it does not automatically mean that tokens will be sold,” said Nicolai Sondergaard, research analyst at crypto intelligence platform Nansen, emphasizing that “there is no cause for concern solely from this.”
Despite the significance of the $10 billion withdrawal queue, validators are likely “consolidating from 32 ETH to 2,048 ETH stakes for operational efficiency,” according to Marcin Kazmierczak, co-founder of blockchain oracle firm RedStone.
This trend includes increased inflows into liquid staking protocols to enhance “capital efficiency,” he told Cointelegraph, adding:
“Much of the withdrawn ETH is being redeployed within DeFi, not sold.”
“The 44+ day withdrawal wait time naturally prevents supply shocks,” he elaborated, noting that Ether’s daily volume of $50 billion continues to far exceed the validator queue.
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Ethereum’s expanding validator queue may also indicate “increasing demand for native yield,” according to Andrei Grachev, founding partner at synthetic dollar protocol Falcon Finance.
“Widespread selling is improbable since most stakers prioritize on-chain returns over exit liquidity,” as Ether transitions from a speculative asset to a “yield-bearing layer of capital,” he stated.
$10 billion Ethereum exit queue raises sell pressure concerns
The influx of pending withdrawals has reignited worries about potential sell pressure for Ether holders.
While this doesn’t imply that all validators aim to profit, a considerable portion of the $10 billion may be liquidated, particularly as Ether’s price has surged 83% over the past year, based on Cointelegraph’s price index.
Further contributing to the unease regarding selling pressure, the validator exit queue is approximately five times greater than the Ethereum entry queue, which currently contains over 490,000 Ether set for staking, with a wait time of eight days and 12 hours.
Even with short-term concerns about selling pressure, the $10 billion withdrawal doesn’t jeopardize the stability of the Ethereum network, which still maintains over 1 million active validators staking 35.6 million Ether, representing 29.4% of the total supply.
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This situation follows Grayscale’s staking of $150 million in Ether on Tuesday, following the crypto-centric asset manager’s launch of staking for its Ether exchange-traded products, making it the first US-based crypto fund issuer to provide staking-based passive income for its funds.
The following day, Grayscale contributed an additional 272,000 Ether worth $1.21 billion to the staking queue, meaning that the firm now holds “the majority of coins presently awaiting staking activation,” according to on-chain analyst EmberCN.
Despite the rising validator exits, Ether’s momentum remains fueled by institutional inflows through exchange-traded funds (ETFs) and corporate treasuries, according to Iliya Kalchev, dispatch analyst at digital asset platform Nexo, who stated to Cointelegraph:
“Institutional and corporate treasuries currently possess over 10% of ETH’s total supply, and October ETF inflows have already surpassed $620 million.”
“The data highlights Ethereum’s transformation into a yield-generating, institutionally acknowledged asset utilized for both infrastructure and collateral purposes,” he further remarked.
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