Ethereum staking continues to gain acceptance, but there’s a problem

  • The total amount staked was equivalent to 21% of the circulating supply of ETH.
  • With an increase in validators, staking rewards have gradually decreased.

The long-awaited Shapella upgrade, which has gone live on Ethereum [ETH] mainnet earlier this year began making progress towards its goal of boosting ETH staking.

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According to a recent update from on-chain analytics firm Glassnode, the total ETH locked on the largest Proof-of-Stake (PoS) network has reached a new all-time high (ATH) of 27.03 million. This represented a nearly 40% jump since running Shapella.

The stakes are high

Shapella, which enabled withdrawals, marked the end of a two-year wait for users who began locking up their ETH holdings in hopes of earning passive income from it.

In fact, not only the ETH staked, but all earned staking incentives could also be withdrawn through the upgrade. This marked a complete transition from the proof-of-work (PoW) algorithm to the proof-of-stake (PoS) algorithm.

As a result, individual holders who had been hesitant to deposit their money for an ambiguous period began to gradually wager more. These holders tested the opt-out mechanism in the first few days after the upgrade. This led to a significant increase in withdrawal requests.

However, since then, deposits have consistently exceeded withdrawals. According to blockchain research firm Nansen, the total amount locked at press time equaled 21% of the circulating supply of ETH.

Source: Nansen

Interestingly, the increase in the amount wagered stands in stark contrast to the exhaustion of the ETH exchange supply. Since Shapella, ETH reserves on centralized exchanges have fallen more than 20% up to press time. Liquid supply only accounted for 18% of all ETH tokens that were in public hands.

The fascinating divergence reflected what could be the start of a long-term trend in the Ethereum market. More and more people were pulling ETH out of the market and using it as an investment to earn returns. And even though staking rewards have been steadily declining over the past two years, the demand for staking continues to rise.

Source: Nansen

Rise of liquid staking

In addition to giving staking a boost, Shapella has also opened new doors of opportunity for Liquid Staking Tokens (LSTs). These derivative tokens, as is well known, allow users to participate in staking while retaining the ability to use them elsewhere in decentralized finance (DeFi) for higher return potential.

Tokens like Lido Staked ETH [stETH] and Rocket Pool’s rETH has begun to replace native tokens as the primary DeFi collateral on various networks.

Overall, liquid staking protocols have extended their dominance since Shapella and have surpassed other staking options like centralized exchanges (CEX) and staking pools.

According to data from Dune, liquid staking accounted for the lion’s share of the ETH staking market, around 36%. From a non-existent entity when ETH staking was rolled out in December 2020, this category has steadily grown.

Source: Dune

What does ChatGPT think of ETH staking?

However, like most analytics these days, I decided to add a tinge of AI to the proceedings. I consulted with our AI expert ChatGPT to share his views on Ethereum’s future growth potential.

I have to admit that the question – whether the staked supply of ETH will exceed 30% of the total circulating supply, was very generic and made the bot show off its guessing skills. However, he resisted the bait.

Source: ChatGPT

ChatGPT responded that predicting the next developments in ETH staking is like “looking into a crystal ball.” However, he maintained that staking will play an important role in the evolution of the Ethereum network.

Staking Rewards Drop Significantly

While ETH staking has clearly grown in popularity over the years, it has ironically reduced staking returns, which users have been chasing in the activity in the first place.

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According to the proof-of-stake model, the rewards were inversely proportional to the amount of ETH deposited on the network and the number of stakers involved. Simply put, the higher the number of stakers, the more spread out the yield.

The total number of validators has increased by more than 50% since Shapella. However, the annualized financial return per validator has dropped significantly, as shown below. At the time of writing, the APR was 4.2%, according to


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