Inside Ethereum’s Exit Queue: Why Validators Are Leaving Now

The price of Ether (ETH +0.14%) was enjoying strong momentum, almost reaching its all-time high (ATH), when it was hit by a sell-off.

Still, ETH has managed to stay above $4K and as of writing is trading at $4,290, down 10% in the past week and 12.2% off its peak. As a result, Ether’s price is up 27% so far this year compared to Bitcoin’s (BTC +0.44%) 21.3%.

With that, the ETHBTC ratio is now at 0.03773, a level last seen in Dec. 2024 when the ratio was on a downtrend. The sell-off isn’t limited to Ether, though. It is being experienced market-wide with the Bitcoin price falling to $113,569. The total crypto market capitalization is also back under the $4 trillion mark.

Even the US stock market has moved down as the market looks for clues on interest-rate cuts ahead of Federal Reserve Chairman Jerome Powell’s address at the Jackson Hole Symposium on Friday.

Minutes from the Fed’s last policy meeting, released recently, emphasized officials’ concerns over inflation risks, which still outweigh employment concerns, with the impact of tariffs yet to materialize, signaling a cautious stance on rate cuts.

President Donald Trump has criticized Powell’s cautious approach to rate cuts, and according to Treasury Secretary Scott Bessent, Trump can announce his replacement by year-end.

As a result, both Spot Bitcoin and Ether exchange-traded funds logged four straight sessions of outflows, with investors pulling a net $1.9 billion, according to data from Farside. 

Ether ETFs accounted for $925.7 million of these outflows, showing a waning interest from institutions. However, corporate Ether accumulators took this as an opportunity to boost their holdings.

SharpLink Gaming (SBET -3.65%) made its largest Ether purchase worth $601.5 million last week, bringing its total Ethereum stash to 740.8K ($3.29 bln), as per Strategic Eth Reserve. 

The online gambling marketer, which has shifted its focus to become an Ethereum treasury, took advantage of risk-off sentiments in order to achieve its goal of acquiring 1% of all circulating ETH.

Tom Lee’s crypto mining firm Bitmine Immersion (BMNR -0.95%), meanwhile, continues to lead as the largest Ethereum treasury in the world, with ~1.1M-1.5M ETH holdings worth ~$6.53 billion.

ETFs and corporate treasuries now collectively hold more than 10.2 million ETH, accounting for 8.65% of Ether’s circulating supply. All this buying helped Ether’s price rally from about $1,400 in April to as high as $4,770 on August 14.

This price action has led to a long queue of ETH stakers wanting to exit the network, which may present a major obstacle in its ascent.

Ethereum Exit Queue Tops $3.7B: Latest Numbers & Timing

As of August 21, 873,263 ETH are waiting to exit the Ethereum network, according to the Validator Queue. In dollar terms, this number is worth $3.74 billion.

This figure has gone down slightly from the record 916,647 on August 20.  

The waiting time for the full withdrawal, meanwhile, is almost the same except for a few hours of decline. It is currently taking 15 days and a few hours to get your staked ETH out of the network.

Data shows that a lot of this demand for exits is coming from Lido and Coinbase (COIN -2.67%), accounting for about 40% and 15% of the ETH waiting to leave, respectively. Together, they are making up more than half of the withdrawals currently in line.

The surge in exit first came in mid-July when Ether price started gaining significant traction. 

When the price came close to $4k level, the amount of ETH wanted to make an exit surpassed those who wanted an entry into the network.

While in early August, the exits saw a big decline, going from almost 744K ETH on July 26 to 417K ETH on August 7, it soon changed the trend and began its ascent again, and climbed a new high this week.

With ETH exits ramping up, the more validators wanting to get out, the longer their waiting times. The queue wait time went up from less than an hour in mid-July to almost 13 days on July 26 and 15.91 days on August 20.

However, this isn’t the first time that such long queues have formed. Back in Jan. 2024, the queue to withdraw staked Ether surged to $1 bln worth of ETH. The backlog was in part due to the defunct crypto lender Celsius, which filed for bankruptcy in 2022 and was in the process of restructuring at the time. Ensuring the “timely distributions to creditors” sent the delay to 5-6 days.

In April 2023, Ethereum validators had to wait more than 17 days to get their staked ETH back due to the blockchain’s Shapella upgrade, which came a few years after the Ethereum staking was initially launched in December 2020.

That upgrade enabled staked ETH withdrawals for the very first time, which, at one point, had about 28,000 validators in line to leave the network.

In the lead-up to that upgrade, crypto exchange Kraken was required by law to unstake all of Ether following a $30 million settlement with the US Securities and Exchange Commission (SEC), which deemed its staking offerings to be unregistered securities. As a result, Kraken made up about 62% of the validators who initiated withdrawal at the time.

Swipe to scroll →

How Ethereum Staking Works (Post-Pectra)

Stakers didn’t always manage the Ethereum network; in fact, they only began a few years ago. 

Originally, Ethereum started as a Proof-of-Work (PoW) blockchain, much like Bitcoin. But while the largest cryptocurrency continues to follow the same rules as ever, Ethereum changed the way the consensus on its blockchain works a few years ago.

It was in 2022 that Ethereum officially adopted the Proof-of-Stake (PoS) consensus mechanism in an event known as “The Merge”.

Unlike in PoW, where miners solve complex computational puzzles to validate transactions and secure the network, PoS selects validators based on the amount of cryptocurrency (ETH) they hold and are willing to stake.

On Ethereum, staking involves depositing 32 ETH to become a validator, which makes one responsible for storing data, processing transactions, and adding new blocks to the blockchain. This way, validators keep Ethereum secure while earning new ETH in the process.

Anyone can help secure the Ethereum network and earn rewards for their contribution. To stake ETH, one has a few different options.

The first one is doing it on your own, which gives you full control and all the rewards. You are not trusting anyone with your funds but are responsible for staking the full 32 ETH (either on your own or by pooling with someone else). But it also means having a dedicated computer that’s connected to the internet ~24/7 and suffering penalties when you go offline. 

Another option is staking as a service, where you delegate the difficult and complex part of dealing with hardware to a validator client. Here, you usually earn full protocol rewards minus the monthly fee for node operations.

Now, if you don’t have or wish to contribute a full 32 ETH, you can stake a smaller amount through pooled staking. This popular staking method, in many cases, comes with ‘liquid staking’ where you get a token, representing your staked ETH, which you can use in DeFi.

One also has the option to stake their ETH through centralized exchanges (CEXs), which is the simplest and straightforward way, but requires trusting the platform with your funds. 

Currently, a total of 36 million ETH are staked, representing more than 29% of the ETH supply, as per Dune Analytics. Meanwhile, there are 1.08 million validators, which are earning an average of 2.9% APR.

The majority of the staked ETH is done so through Lido, which has a 24.48% market share, followed by Binance’s 8.5% and Coinbase’s 7%.

As for the different ways ETH is staked, 28.2% of the ETH staked supply is done via liquid staking, 25.3% through CEXs, and 19.2% through staking pools. 7.3% of the staked ETH supply, meanwhile, is engaged in liquid restaking.

Why Ethereum Has an Exit Queue (Churn Limits Explained)

Now, a significant amount of ETH is locked in and earning rewards. But a whole lot of validators are looking to get out, which has led to congestion. This congestion we are currently seeing is due to the dynamics of Ethereum’s PoS model, which limits the number of validators that can join or leave the network.

So, the staking exit queue or churn queue is a built-in mechanism of Ethereum that manages the withdrawal of funds in an orderly fashion so as to preserve network stability and prevent mass exits from harming consensus.

The exit churn limit is calculated based on the active validator count. This limit determines how many validators can unstake or exit per epoch in order to avoid any abrupt shifts and protect the network from sudden exits that could reduce its security.

Reward payments in excess of 32 ETH automatically and regularly get sent to a withdrawal address linked to each validator. If someone chooses to exit staking entirely, their full validator balance gets unlocked and withdrawable, but only after passing the exit process.

When a validator initiates a voluntary exit, they are put into the exit queue, where they wait to be processed. Once they have made their exit, there’s a mandatory delay before funds become withdrawable. 

The Electra upgrade has changed how the churn limit is calculated, switching from validators per epoch to ETH per epoch. With a hard cap of 256 ETH, it effectively limits exits to a maximum of 8 full nodes every 32 blocks, depending on validator balances.

So, it is by design that the Ethereum network is facing a long line of Ether looking to exit. But why do so many want an out?

Why Validators Are Exiting Now: Profit-Taking, Borrow Rates, stETH Depeg

Well, the surge comes as the ETH price retraces its rally, which could indicate validators looking to sell their ETH while its value is still high. 

The price of Ether has been, after all, a disappointment so far this cycle. The second-largest cryptocurrency by market cap has yet to hit a fresh ATH, while Bitcoin has hit new highs above $124,000, about 80% higher than its 2021 peak of $69K.

As the digital asset manager Galaxy noted in its July report, the jump in unstaking activity was expected due to the outperformance of ETH’s price and changes to staking requirements from the Pectra upgrade.

Selling Ether above $4K isn’t the only reason, though. There are a few other factors at play, too.

“Disruptions in the ETH lending market and the sharp rise in borrow rates” is what Galaxy believes is the main reason behind the record number of unstaked ETH.

As the asset manager explained:

“The sharp spike was largely driven by a surge in ETH borrow rates that began on July 16. This spike in rates triggered a widespread unwind of ETH looping strategies, which in turn intensified de-pegging pressure on ETH-based liquid staking and restaking tokens (LSTs and LRTs).”

The depegging of stETH, liquid staked ETH from Lido, in particular, could be responsible here.

This event occurred when a trader withdrew a significant amount from the decentralized lending protocol Aave, resulting in rates on ETH loans soaring past what borrowers could afford. As leveraged traders were forced to unwind their positions, the price of stETH was pushed down slightly below that of ETH.

The token stETH represents staked ether in Lido, combining the value of the initial ETH deposit as well as staking rewards. These tokens are minted when ETH is deposited and burned when ETH is redeemed.

As of writing, stETH is down 0.1% against ETH, according to CoinGecko. One stETH is currently worth 0.9978 ETH.

“stETH is at a 30bps depeg – this creates consistent peg arbitrage pushing validator exits. The queue is negative for LSTs/LRTs because it increases the duration risk of holding these instruments, but for ETH/USD it is largely neutral as stETH.”

– Rob Schmitt, cofounder of Cork Protocol

In addition to this, validator consolidation and upcoming protocol changes are among the factors behind the record number of withdrawals.

It is also speculated that the approval of spot Ethereum staking ETFs, expected later this year, could have prompted investors to free up their capital in preparation for new financial products. Institutional players may also be unwinding their position to meet their DeFi needs, tuning towards more attractive and higher-return strategies, or just engaging in simple profit-taking.

So, all the Ether that is currently in the exit queue will not be sold. They may either go into custody, get restaked, or be deployed elsewhere.

Entry Queue & New Demand: Who’s Staking ETH Today

While validators are lining up to make an exit, demand for ETH staking is also increasing.

In fact, staking is continuing at the same steady speed as always, signalling a sustained interest in joining the validator set and earning passive income on the regular. The entry queue currently has 196,135 ETH wanting to get in and secure the network. The waiting time for getting an entry is 3 days and 10 hours.

The entry queue actually experienced a big jump between May and June, reaching 456,721 ETH on June 22. Ether, looking to gain an entry into the network, jumped to 713,504 in April 2024, while June 10, 2023, marked their highest level ever at over 3 million ETH.

The current fresh demand for ETH staking could be coming from the ETH treasury firms. SharpLink Gaming is one example, which has been accumulating a growing number of ETH since late May and staking them as part of its strategy to earn rewards.

The spike in ETH staking requests and the increasing queue to become a validator, according to Galaxy, is “driven by renewed enthusiasm over ETH” following its outperformance against Bitcoin and the launch of digital asset treasury companies (DATCOs).

So, amidst the high withdrawals, processing is running at capacity, and entry demand is persisting. Against this backdrop, the record-breaking withdrawal simply highlights an evolving period for Ether staking.

According to Galaxy:

“Despite the uptick in demand, ETH staking architecture operated as intended. While some may complain about the large increases in queue times, this is a feature, not a bug, of the network. It is intended to limit the rate at which validators can enter or exit, thereby protecting the stability and security of Ethereum’s proof-of-stake consensus mechanism.”

The digital asset manager did point out the fragility of the ETH liquid staking and restaking ecosystem, which it said is sensitive to leveraged strategies and susceptible to stress under extreme market conditions.

Latest Ethereum (ETH) News and Developments

Ethereum’s Yield Edge in the Current Crypto Economy

In the vast world of crypto, where Bitcoin has clearly attained its place as a store of value, staking makes Ethereum an attractive asset for both retail and institutions, helping it stand apart from the crypto king.

By allowing anyone to become a validator and earn rewards, newly issued ETH plus transaction fees, without requiring specialized, expensive ASIC hardware and access to cheap electricity, staking has made Ethereum far more accessible. One can simply buy yield-generating ETH and then put it to work.

For institutions, this can essentially make ETH more than just a speculative asset. In fact, its yield-bearing infrastructure offers familiarity given its similarity to how treasuries function in traditional finance. Meanwhile, liquid staking derivatives like stETH offer institutions liquidity and flexibility. They can redeploy their staked ETH in the innovative world of DeFi.

The problem with staking, all this time, has been regulatory uncertainty, and even that is changing under the current Donald Trump administration.

With the SEC clarifying that staking does not violate securities laws, holders of Ether ETFs are expected to be able to capture yield soon, and the network is working as intended. Ethereum reflects a maturing system that has the potential to play a major role in global finance!

Click here to learn all about investing in Ethereum.