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Nearly 70% of institutional investors in Ethereum (ETH) participate in ETH staking, with 60.6% of them using third-party staking platforms.
Ethereum staking landscape at a glance
According to one report According to Blockworks Research, 69.2% of institutional investors who own Ethereum are in the process of staking the platform’s native ETH token. Of this, 78.8% consists of investment firms and asset managers.
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Notably, just over one in five institutional investors – or 22.6% – of respondents said ETH or an ETH-based liquid staking token (LST) makes up more than 60% of their total portfolio allocation.
The report highlights a seismic transformation in the Ethereum stake landscape since the network transitioned from a proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism during the Merge upgrade.
Currently, there are almost 1.1 million on-chain validators staking 34.8 million ETH on the network. After the merger, participants in the Ethereum network were only allowed to withdraw their ETH after the Shapella upgrade in April 2023.
After the initial phase of ETH withdrawals, the network has seen steady inflows, indicating strong demand for ETH staking. Currently, 28.9% of total ETH supply has been staked, making it the network with the highest dollar value of staked assets, worth over $115 billion.
It is worth noting that the annualized return from staking ETH is approximately 3%. As more ETH is staked, the return decreases proportionately. However, network validators can also earn additional ETH through priority transaction fees during periods of high network activity.
Third party spawning overshadows solo spawning
Anyone can participate in ETH staking, either as a solo staker or by delegating their ETH to a third-party staking platform. While solo staking gives the staker full control over their ETH, it comes with a high entry barrier of staking a minimum of 32 ETH – worth over $83,000 at the current market price of $2,616.
Conversely, holders with as little as 0.1 ETH can stake through third-party stakers, but must give up a degree of control over their assets. Recently, Ethereum co-founder Vitalik Buterin stressed the need to lower the entry requirements for ETH solo stakers to ensure greater network decentralization.
Currently, approximately 18.7% of the strikers are solo strikers. However, the trend shows that solo staking is losing popularity due to the high entry barrier and the inefficiency of locked capital. The report explains:
Once locked in staking, ETH can no longer be used for other financial activities in the DeFi ecosystem. This means that one can no longer provide liquidity to a variety of DeFi primitives, or collateralize one’s ETH to take out loans against it. This comes with an opportunity cost for solo stakers, who must also consider the dynamic network reward rates of staked ETH to ensure they maximize their risk-adjusted return potential.
As a result, third-party staking solutions are becoming increasingly popular among ETH stakers. However, such platforms – dominated by centralized exchanges and liquid staking protocols – raise concerns about network centralization.
Nearly 48.6% of ETH stakers using third-party staking platforms use only one integrated platform such as Coinbase, Binance, Kiln, and others.
The report highlights the key factors that drive institutional investors to use third-party platforms, including platform reputation, supported networks, pricing, ease of onboarding, competitive costs and platform expertise.
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Although the Ethereum staking ecosystem is evolving, this growth is not yet reflected in the price of ETH. ETH has significantly underperformed against BTC for an extended period of time, only recently win traction following the decision of the US Federal Reserve (Fed) to cut interest rates.
Nevertheless, some crypto research firms remain optimistic about the possible comeback of ETH against BTC later this year. At the time of writing, ETH is trading at $2,616, up 0.8% in the last 24 hours.
Featured image from Unsplash, charts from Blockworks Research and Tradingview.com