The Protocol: ETH Exit Queue Bottlenecks as Validators Accumulate

Greetings from The Protocol, CoinDesk's weekly roundup of key developments in cryptocurrency technology. I’m Margaux Nijkerk, a reporter at CoinDesk.

In this edition:

• Ethereum Confronts Validator Backlog with 2.5M ETH Pending Exit
• Do Layer 2s Represent the Future of Ethereum’s DeFi? Liquidity and Innovation Suggest Yes
• Ethereum Foundation Launches New AI Team for Agentic Payments Support
• American Express Unveils Blockchain-Based ‘Travel Stamps’

Network News

ETHEREUM VALIDATOR EXIT QUEUE EXPERIENCING BACKLOG: Ethereum’s proof-of-stake mechanism is under its greatest strain yet. As of mid-September, approximately 2.5 million ETH — roughly valued at $11.25 billion — is waiting to exit the validator set, according to validator queue dashboards. The delay has pushed exit wait periods to over 46 days on Sept. 14, the longest in Ethereum’s brief staking timeline, dashboards indicate. The previous peak, in August, recorded an 18-day wait. The initial trigger occurred on Sept. 9, when Kiln, a major infrastructure provider, decided to exit all its validators for precautionary reasons. This action, prompted by recent security threats including the NPM supply-chain attack and the SwissBorg breach, placed around 1.6 million ETH into the queue simultaneously. While not connected to Ethereum’s staking protocol per se, these hacks undermined confidence enough for Kiln to halt operations, revealing how external events in the wider crypto landscape can impact Ethereum’s validator dynamics. In a post from staking provider Figment, Senior Analyst Benjamin Thalman noted that the current backlog isn’t solely about security. Following a 160% rise in ETH since April, some stakers are simply cashing out. Others, particularly institutional investors, are reallocating their portfolios. Concurrently, the number of validators entering the Ethereum staking ecosystem continues to grow. Ethereum’s churn limit, a protocol safeguard that caps how many validators can enter or exit within a specific timeframe, is currently limited to 256 ETH per epoch (roughly 6.4 minutes), slowing the process for validators to join or leave the network. The churn limit is designed to maintain network stability. With over 2.5M ETH waiting, stakers as of Sept. 16 face a 44-day period before reaching the cooldown step. — Margaux Nijkerk Read more.

IS L2 DEFI UNDERMINING ETHEREUM’S L1 DEFI?: Ethereum is experiencing a paradox. Despite ether reaching record highs in late August, decentralized finance (DeFi) activities on Ethereum’s layer-1 (L1) appear subdued compared to peaks seen in late 2021. Fees collected on mainnet in August were just $44 million, a 44% drop from the previous month. In contrast, layer-2 (L2) networks like Arbitrum and Base are thriving, boasting $20 billion and $15 billion in total value locked (TVL) respectively. This disparity raises a pivotal question: are L2s eroding Ethereum’s DeFi engagement, or is the ecosystem advancing toward a multi-layered financial framework? AJ Warner, Chief Strategy Officer of Offchain Labs, the firm behind Arbitrum, contends that the metrics are more intricate than just L2 DeFi cutting into L1. In an interview with CoinDesk, Warner asserted that concentrating solely on TVL overlooks the broader picture, and that Ethereum is increasingly positioning itself as crypto’s “global settlement layer,” foundational for high-value issuance and institutional actions. Products like Franklin Templeton’s tokenized funds or BlackRock’s BUIDL initiative are launching directly on Ethereum L1 — activities not fully represented in DeFi metrics but highlighting Ethereum’s vital role in crypto finance. As a layer-1 blockchain, Ethereum serves as the secure yet relatively slow and costly base network. Layer-2s are scaling solutions built atop it, designed for quicker transactions at a fraction of the cost before ultimately settling back on Ethereum for security. This dynamic is why they appeal to both traders and developers. Metrics such as TVL, the volume of crypto deposited in DeFi protocols, illustrate this trend as activities shift to L2s, where diminished fees and swifter confirmations make everyday DeFi far more feasible. — Margaux Nijkerk Read more.

EF CREATES DECENTRALIZED AI TEAM: The Ethereum Foundation (EF) is forming a specialized artificial intelligence (AI) team to develop Ethereum into the settlement and coordination layer for what it refers to as the “machine economy,” according to research scientist Davide Crapis. Crapis, who revealed the initiative on X, mentioned that the new dAI Team will focus on two main objectives: facilitating AI agents to transact and coordinate without intermediaries, and constructing a decentralized AI framework that minimizes reliance on a small number of dominant firms. He noted that Ethereum’s neutrality, verifiability, and resistance to censorship make it an ideal base layer for intelligent systems. The EF is a Swiss non-profit organization that funds and coordinates Ethereum blockchain development. It does not govern the network but rather plays a catalytic role by aiding researchers, developers, and ecosystem initiatives. Its responsibilities include funding enhancements like Ethereum 2.0, zero-knowledge proofs, and layer-2 scaling, as well as community programs such as the Ecosystem Support Program. The foundation also hosts events like Devcon to promote collaboration and acts as a policy advocate for blockchain adoption. In 2025, EF was restructured to accommodate Ethereum’s growth, focusing on ecosystem acceleration, founder support, and outreach to enterprises. The newly established dAI Team reflects an ongoing shift toward specialized units that tackle emerging technologies. — Siamak Masnavi Read more.

AMERICAN EXPRESS EXPLORES BLOCKCHAIN TRAVEL STAMPS: American Express has launched Ethereum-based "travel stamps" to provide a commemorative record of travel experiences. These travel experience tokens, categorized as NFTs (ERC 721 tokens), are minted and maintained on Coinbase’s Base network, according to Colin Marlowe, Vice President of Emerging Partnerships at Amex Digital Labs. The travel stamps can be collected whenever a cardholder uses their card, but Marlowe noted they are non-tradable NFTs and do not function like blockchain-based loyalty points — at least for now. “It's a valueless ERC-721, so technically an NFT, but we just didn't brand it as such. We wanted to articulate it in a way that aligns with the travel experience itself, so we refer to these as stamps, represented as tokens,” Marlowe stated in an interview. “As a representation of history, the stamps could create intriguing partnership opportunities over time. Our intention is not to sell these or generate immediate revenue; instead, we aim to enrich the travel experience with Amex and differentiate it,” he added. Fireblocks is also involved, providing Amex with its Wallet-as-a-Service support for the passport product, according to a representative. The Amex travel app features various tools for travelers and Centurion Lounge enhancements, the company reported. – Ian Allison Read more.

In Other News

• Blockchain-based real-world asset (RWA) specialists Centrifuge and Plume have introduced the Anemoy Tokenized Apollo Diversified Credit Fund (ACRDX), backed by a $50 million anchor investment from Grove, a credit infrastructure protocol within the Sky Ecosystem. The fund offers blockchain investors access to Apollo’s diversified global credit strategy, which includes direct corporate lending, asset-backed lending, and dislocated credit, a type of undervalued debt due to market stress and lack of liquidity. ACRDX will be available through Plume’s Nest Credit vaults under the ticker nACRDX, providing institutional investors with on-chain access to the strategy. By tokenizing Apollo’s portfolio, the fund aims to decrease entry barriers and enhance transparency for investors interested in private credit markets, as stated in a press release. — Ian Allison Read more.
• Google is advancing toward merging artificial intelligence (AI) with digital currency, introducing a new open-source protocol that enables AI applications to send and receive payments, including support for stablecoins, which are digital tokens tied to fiat currencies like the U.S. dollar, according to a press release. To incorporate stablecoin functionalities, Google collaborated with the U.S.-based crypto exchange Coinbase, which has been developing its own AI-integrated payment infrastructure. The company also worked alongside the Ethereum Foundation and coordinated with over 60 additional organizations, including Salesforce, American Express, and Etsy, to cover traditional finance use cases. This initiative builds on Google’s previous efforts to establish standards for “AI agents.” These digital agents might eventually manage complex tasks, such as negotiating mortgages or purchasing clothing, without direct human intervention. — Oliver Knight Read more.

Regulatory and Policy

• Contrary to assertions from the U.S. banking sector, stablecoins do not pose a threat to the financial ecosystem, according to the Chief Policy Officer at crypto exchange Coinbase (COIN), Faryar Shirzad. Banks’ claims to the contrary, he argued, are fabrications designed to safeguard their revenues, as detailed in a blog post. "The central assertion — that stablecoins will trigger a mass outflow of bank deposits — simply doesn’t hold," Shirzad remarked. "Recent studies show no substantial connection between stablecoin usage and deposit flight among community banks, and there’s no reason to presume that larger banks would fare any worse." Major lenders still retain trillions at the Federal Reserve, and if deposits were genuinely at risk, he argued, they would be competing more aggressively for customer funds by offering higher interest rates rather than relegating cash at the central bank. Shirzad believes the genuine motivation behind banks’ resistance is the payments business. Stablecoins, digital tokens whose valuation is linked to a real-world asset like the dollar, provide quicker and cheaper monetary transfer methods, threatening an estimated $187 billion in annual transaction fee revenues for traditional banks and card networks. He drew a parallel to earlier conflicts against ATMs and online banking, where incumbents warned of systemic risks but, in essence, were protecting entrenched profits. — Jesse Hamilton Read more.
• U.S. SEC Chair Paul Atkins stated that the moment for crypto has arrived, committing to modernize the U.S. securities regulatory framework and extend “Project Crypto” to transition markets on-chain. Addressing an audience in Paris on Sept. 10 at the OECD’s inaugural Roundtable on Global Financial Markets, Atkins announced that the SEC will pivot away from an enforcement-centric policy approach to provide clear regulations concerning tokens, custody, and trading platforms. “Policy will no longer stem from ad hoc enforcement activities,” he declared, heralding a new era of financial innovation on U.S. territory. Atkins asserted that most tokens are not securities and promised distinct regulations for determining when crypto assets fall under SEC jurisdiction. He emphasized that entrepreneurs should be capable of raising capital on-chain without “endless legal ambiguities” and vowed to develop a regulatory framework that consolidates trading, lending, and staking under a single license. Custodial regulations will also be revised to offer investors and intermediaries diverse options. — Siamak Masnavi Read more.

Calendar

• Sept. 22-28: Korea Blockchain Week, Seoul
• Oct. 1-2: Token2049, Singapore
• Oct. 13-15: Digital Asset Summit, London
• Oct. 16-17: European Blockchain Convention, Barcelona
• Nov. 17-22: Devconnect, Buenos Aires
• Dec. 11-13: Solana Breakpoint, Abu Dhabi
• Feb. 10-12, 2026: Consensus, Hong Kong
• Mar. 30-Apr. 2: EthCC, Cannes
• May 5-7, 2026: Consensus, Miami