On-Chain Insights #7: State of Ethereum Staking & Withdrawals

Link to the Ethereum Staking and Withdrawals Dashboard: https://dune.com/21co/ethereum-staking-and-withdrawals

Link to all of our on-chain dashboards: https://dune.com/21co

TL;DR

• Withdrawals: 1.4M ETH ($2.6B) has been withdrawn since the Shanghai Upgrade. Over 30% comes from Kraken due to regulatory scrutiny in the U.S.
• Staking: Largest weekly deposits with 571.9k newly staked ETH. Institutional-grade staking providers like Kiln, Stakefish, Staked.US, Bitcoin Suisse, and Figment mainly drive the inflows
• Withdrawal Credentials: 241.8k validators updated from BLS (0x00) to execution address (0x01) to be eligible for payouts and withdrawals
• Estimated Time for Full Withdrawals: With 18.6k validators triggering full withdrawals  and 8.5k validators requesting partial withdrawals the estimated time is 16 days to process all the full withdrawals based on our Ethereum Withdrawal Simulator (EWS)
• Estimated Destination for the ETH Withdrawals: 15% has been sent to crypto exchanges, 14% has been re-staked, 2% has been sold on decentralized exchanges
• Liquid Staking Derivatives (LSDs): Lido’s stETH has increased by 3.27%, Coinbase cbETH has decreased by 3.85%, and Rocket Pool’s rETH has risen by 7.58% in circulating supply

Background

On April 12, 2023, the Shanghai upgrade enabled validators to withdraw their stake on Ethereum, effectively becoming Ethereum’s first on-chain liquidity event. A critical misconception is that the upgrade will cause colossal selling pressure, given that 18.8M ETH ($35B) is locked in the Beacon Chain. To maintain network security, Ethereum has limited the number of validators that can perform a full withdrawal. The exit limit is restricted to 8 validators per epoch every ~6 minutes or ~512 withdrawals. As a result, only 1.4M ETH has been withdrawn over the past 12 days.

Key Takeaways

1. 4M ETH ($2.6B) has been withdrawn since the Shanghai Upgrade. Over 30% comes from Kraken due to regulatory scrutiny

Figure 1: ETH Withdrawal Summary

Source: 21Shares / Dune Analytics

$2.6B worth of ETH has been withdrawn: 34.9% are full withdrawals, while the remaining 65% are partial withdrawals. 14,412 validators have successfully exited the network and received their Ether (ETH) back in their wallets. Out of the exited validators, over 69.5% come from Kraken. It is an expected outcome since the SEC charged Kraken’s staking-as-a-service platform as an unregistered security back in February. Not only does Kraken need to pay $30M to the SEC, but they also need to shut down their staking service to U.S. customers.

As a result, Kraken has been aggressively exiting from Ethereum to get back customers’ assets. Their market dominance in ETH staking has dropped from 7.2% to 5.7% since the Shanghai upgrade.

2. Largest weekly deposits with 571.9k newly staked ETH. The flow is mainly driven by institutional staking providers

Figure 2: Weekly ETH Staked

Source: 21Shares / Dune Analytics

Enabling ETH withdrawals has reduced the liquidity risk for investors, particularly institutions. Last week, we saw the highest amount of ETH being staked in a week. The inflow is mostly driven by institutional-grade staking providers, including Stakefish, Staked.US, Kiln, Figment, and Bitcoin Suisse combined for 162,464 ETH staked in the last 7 days (28.4% of the total ETH staked on the network).

3. 241.8k validators updated from BLS (0x00) to execution address (0x01) to be eligible for payouts and enable withdrawals

Figure 3: Withdrawal Credentials Breakdown

Source: 21Shares / Flipside Crypto / Data courtesy: Tom Wan

There are 2 types of withdrawal credentials: BLS address (0x00) and execution address (0x01). In order to be eligible for withdrawals, validators with 0x00 credentials have to migrate to 0x01 credentials by submitting the “BLStoExecutionChange” message on the network. Yet, the process is limited to 16 per block or every 12 seconds. Therefore, as of the time being, 241.8k validators have updated to 0x01 credentials, yet, there are still 80.2k validators with the 0x00 credentials.

4. Our Estimation: 16 days to process the full withdrawals by 18.6k validators in the Exit Queue (full withdrawals) and 8.5k Validators in the Withdrawal Queue (partial withdrawals)

Figure 4: Validators in Exit & Withdrawal Queue

Source: 21Shares / Flipside Crypto / Data courtesy: Tom Wan

Based on the estimation by our Ethereum Withdrawal Simulator (EWS), it will take approximately 16 days to process all the full withdrawals in the exit and withdrawal queue. With 872k ETH ($1.6B) under these validators, 54.5k ETH ($100.6M) will be withdrawn per day

5. 15% has been sent to CEXs, 14% has been re-staked, and 2% has been sold on DEXs

Figure 5: Top ETH Transfers after Withdrawal

Source: 21Shares / Flipside Crypto / Data courtesy: Tom Wan

With the 1.4M ETH withdrawn, only 610k (43.6%) ETH has been transferred away from the withdrawal addresses. 216k ETH (15%) were sent to crypto exchanges (CEXs), mainly to Binance, Huobi, and Kraken. Even though there is a possibility that some of the ETH will be sold, it is more likely that most of the ETH will be used to honor withdrawals/reward distributions for clients that have used their staking services.

Instead of selling it to the open market, 207k ETH (14.9%) has been re-staked on the Beacon Chain. It is a testament to validators believing in Ethereum for the long run and continuing to secure the network.

Despite not having full visibility of the activities on crypto exchanges, we can track the amount of ETH that has been swapped on decentralized venues (DEXs) after withdrawing from the Beacon Chain. Around 31.6k ETH (2%) was traded on DEXs after receiving the withdrawals. The most swapped asset is USDC. However, we can also see that some exited validators are trying to swap to wrapped assets denominated in Ether, including stETH and rETH, showing they are continuing to stake Ethereum but opting for a liquid form of staking.

6. Lido’s stETH has increased by 3.27%, Coinbase cbETH has decreased by 3.85%, and Rocket Pool’s rETH has risen by 7.58% in circulating supply

Figure 6: Landscape of Liquid Staking Derivatives

Source: 21Shares / Dune Analytics

We would expect Liquid Staking Derivatives to continue gaining more traction in the future as it provides stakers to maintain the liquidity of ETH while enjoying secondary market liquidity. That said, Lido and Rocketpool have increased the circulating supply of their liquid staking derivatives by 3% and 7%, respectively. On the other hand, Coinbase’s cbETH decreased in circulating supply by 3.85%. It is also worth noting that Lido has not enabled withdrawals yet. They will complete the security audits of its V2 upgrade before launching the withdrawals in sometime in May.

Closing Thoughts

The Shanghai upgrade has enabled withdrawal for validators and reduced the liquidity risk for investors. It will not be a surprise if more institutional investors start to stake more ETH in the future. Liquid Staking Derivatives will also be a popular option for investors to stake their ETH while maintaining liquidity.

Given the current exit and withdrawal queue, more ETH withdrawals are expected to come in the future. In the meantime, Celsius, a company that filed for Chapter 11 bankruptcy last year, has not requested to withdraw from Ethereum yet. Also, Lido, the largest entity with the most ETH staked, has not enabled withdrawals either. However, based on our observations, the ETH withdrawals have yet to cause significant selling pressure in the market. Instead, some of the validators reinvested in the network to continue providing security for Ethereum.

Link to the Ethereum Staking and Withdrawals Dashboard: https://dune.com/21co/ethereum-staking-and-withdrawals

Link to all of our on-chain dashboards: https://dune.com/21co