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 Overview
According to a report Per Blockworks Research, 69.2% of institutional investors who hold Ethereum are involved in staking the platform’s native ETH token. Of these, 78.8% are investment companies and asset managers.
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Notably, just over one in five institutional investors – or 22.6% – of respondents said that ETH or an ETH-based liquid stake token (LST) constitutes more than 60% of their total portfolio allocation.
The report notes a seismic transformation in the Ethereum staking landscape since the network moved from a proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism during the Merge upgrade.
Currently, there are around 1.1 million on-chain validators staking 34.8 million ETH on the network. After the merger, Ethereum network participants were only allowed to withdraw their ETH after the Shapella update 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 the total ETH supply is staked, making it the network with the highest dollar value of staked assets, valued at over $115 billion.
It is important to note that the annualized yield from ETH staking is around 3%. As more ETH is staked, the yield decreases accordingly. However, network validators can also earn additional ETH through priority transaction fees during periods of high network activity.
Third-Party Staking Overshadows Individual Staking
Anyone can participate in ETH staking, either as an individual staker or by delegating their ETH to a third-party staking platform. While individual staking gives the bettor full control over their ETH, it comes with a high entry barrier of staking at least 32 ETH – worth over $83,000 at the current market price of $2,616.
On the other hand, holders can stake with as little as 0.1 ETH through third parties, but must give up some degree of control over their assets. Recently, Ethereum co-founder Vitalik Buterin stressed the need to reduce entry requirements for individual ETH participants to ensure greater decentralization of the network.
Currently, around 18.7% of bettors are individual bettors. However, the trend shows that individual betting is losing popularity due to the high entry threshold and inefficiency of blocked capital. The report explains:
Once locked in staking, ETH can no longer be used for other financial activities across the DeFi ecosystem. This means that it is no longer possible to provide liquidity to a variety of DeFi primitives, or to secure someone’s ETH to borrow against. This represents an opportunity cost for individual stakers, who must also take into account the network’s dynamic reward rates of staked ETH to ensure they are maximizing their risk-adjusted yield potential.
As a result, third-party staking solutions are becoming more popular among ETH stakers. However, such platforms – dominated by centralized exchanges and liquid staking protocols – raise concerns about network centralization.
Close to 48.6% of ETH stakers using third-party staking platforms are only using 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 integration, competitive costs, and platform experience.
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Although the Ethereum staking ecosystem is evolving, this growth has not yet been reflected in the price of ETH. ETH has significantly underperformance against BTC for an extended period, only recently winning following the decision by the US Federal Reserve (Fed) to reduce interest rates.
However, some cryptographic research companies remain optimistic about ETH’s potential comeback against BTC later this year. At press time, ETH was trading at $2,616, up 0.8% in the last 24 hours.
Featured image from Unsplash, charts from Blockworks Research and Tradingview.com