Principal ETH Withdrawals Taper Off as Cumulative Staked Ether Surpasses 20M

Ethereum withdrawal requests piled up steadily in the first few days after the implementation of the Shapella upgrade in mid-April. On-chain data shows that rewards on Ether previously deposited to the Beacon Chain by early stakers made up a significant chunk of the daily outflow volume, which peaked on April 15. The withdrawn volume on that day totaled 235,844 ETH, against a deposit figure of 40,336 ETH, according to Nansen data.

ETH (1Y) deposits and withdrawals. Source: Nansen

One month later, the picture has changed, as reflected in the shrinking volume of withdrawn rewards.

Ethereum staking outpacing withdrawals

Beaconcha.in's validators dashboard confirms that the daily volume of withdrawals has declined after bulging towards the end of last week. Processed withdrawals rose to 67,152 ETH last Friday before dipping to 53,900 ETH on Saturday and 12,295 ETH coming off the weekend. Monday's processed withdrawals totaled 7,588 ETH constituting 5,888 ETH in principal and the rest as rewards.

Processed withdrawals

The principal and rewards withdrawal volume increased slightly on Tuesday but remained below 25,000 ETH amid recovering deposits. Nansen's Shapella dashboard tracked the total volume waiting for withdrawal to 64,154 ETH and the validators queued for full withdrawal to 1,841.

Meanwhile, daily deposit balances have started picking up after falling to 50,565 ETH over the weekend. Beaconcha.in data shows 87,199 ETH was deposited on Monday, with Tuesday's initiated deposit volume almost doubling to 158,301 ETH.

Initiated deposits

Overall, the total net flow, representing the difference between staked and withdrawn volume, since the Shanghai upgrade has surpassed 1 million ETH per Dune Analytics staking dashboard. This display of more depositors sending Ether to the Beacon Chain address suggests a degree of eagerness among holders to reap ETH-denominated yield as well as confidence in the long-term prospects of the project.

PEPE is the latest reminder that Ethereum must solve its gas price issues

The latest episode of the meme-coin season featured PEPE, the frog-themed token that recently soared, peaking at a $1.63 billion market capitalization on May 5, within three weeks of launch. Though the token's market capital tanked by more than 60%, slipping below $600 million, PEPE remains the talk of the crypto community. Crypto financial services platform Matrixport reported that the PEPE price downturn could be traced back to traders offloading substantial portions of their holdings in response to the meme coin's listing on Binance.

Blockchain intelligence firm Santiment ratified the same, explaining that early adopters of the token were likely transferring their PEPE and subsequently converting it into Ether to turn a profit. These owners had likely gotten most of their PEPE through ETH swaps on DEXs such as Uniswap and 1inch.

The gas fee problem is a never-ending headache

Heightening trading activity around PEPE destabilized gas prices on Ethereum, soaring beyond 150 Gwei and peaking on May 5 at an average of about 155. 84 Gwei. Etherscan data shows that this average gas price figure hovered above 100 Gwei until May 13, marking the first time Ethereum consistently sustained the levels since May 2022.

Ethereum average gas price chart

While this meant the network became expensive for the average user, validators benefitted. Layer twos were affected by the increased activity too, as they also became unusable with unbearable transaction fees, with some users seeing as high as $30 on zkSync.

Validators are making a bundle in May

Ethereum's staking rate, the anticipated annualized return for validators, grew last week, reaching 8.6% as on-chain gas fees spiked. While the reward reference rate has slightly dropped to 6.634% at writing, last week's levels are unlike anything seen in other months this year. Beaconcha.in data shows that in the first week of May, Ethereum validators got a massive payout, earning $46 million – 40% more than the last week of April.

ETH store

Validator earnings in those seven days totaled 24,997 Ether, significantly buoyed by the high transaction fees they've been collecting (owing to the increased on-chain activity), on top of consensus rewards (for proposing and attesting blocks securing Ethereum). Beaconcha.in's Ethereum staking reward reference rate dashboard shows that the average financial return achieved by validators on the Ethereum network is back above 6.6% p.a. after slipping below 5.5% on Saturday for the first time this month.

To learn more about Ethereum, check out our Investing in Ethereum guide.

Staked ETH surpasses 20 million milestone as liquid staking platforms thrive

Nansen's staking dashboard shows that more than 20 million, approximately 15.30% of the total circulating supply, ETH has been staked since December 2020. The analytics platform has worked out the total Ether locked inclusive rewards to 20,270,000 ETH and the validator count to 629,540.

Notably, more than 6.275 million ETH tokens (31% of staked supply) have been deposited through Lido's platform per Dune Analytics. Lido's deposit address makes up a market share of 86.48% among liquid staking depositors.

ETH stakers chart. Source: Dune Analytics

Coinbase ranks second-place among ETH stakers with a staking contribution of 2.26 million ETH (11.2% market share) ahead of Binance, whose platform has facilitated the staking of 1.2 million ETH, equating to a market share of 5.6%.

ETH stakers chart 2

Liquid staking depositors like Lido Finance have been the biggest beneficiary of Shapella. Among liquid staking depositors, RocketPool trails Lido with slightly over 584,00 ETH staked through it, followed by Frax Finance in third place. The pair combine for a market share of 10.2%, illustrating the dominance of Lido.

Liquid staking derivatives

Nansen data also shows Coinbase leads in the volume of total ETH withdrawable, as it is expected to facilitate outflows of 17,220 ETH, roughly 28.5%.

ETH waiting for withdrawal

Kraken, on the other hand, leads entities in the principal withdrawn, having processed roughly 32%, followed by Coinbase with a 16.3% contribution.

ETH principal withdrawn

The exchange has also racked up the most significant volume in all-time withdrawn (including rewards), making up a 24.3% share, followed by Binance with an 11% proportion.

Check out our Lido, Rocket Pool, and Frax guides to learn more about liquid staking derivatives.

Validators entering queue to wait for four weeks

While the majority of the validators looking to join the network are new participants, some are previous entrants rejoining the network after withdrawing their initially staked tokens. Wenmerge validator queue dashboard shows it will take roughly 28 days to clear the more than 50,000 validators in the entering queue.

OFAC-compliant Ethereum blocks trend downwards

Last year, the Office of Foreign Assets Control sanctioned coin mixer Tornado Cash for alleged involvement in processing the proceeds of cybercrime obtained via hacks and heists. At the time, serious questions arose over the censorship resistance of Ethereum, with popular maximal extracted value (MEV) relay operators choosing to comply with rising and filter certain transactions on the network.  MEV services enable blockchain validators to maximize the rewards by strategically reordering transactions within a block and proposing said blocks, before relaying them to the validators.

On Ethereum, MEV is realized via open-source software – MEV Boost, which proficiently reworks transactions to optimize validator returns. MEV Boost operates in collaboration with various competing entities that employ a particular type of software referred to as ‘relay software,' which bundles transactions and dispatches to the validators for processing and inclusion in the blockchain. At the height of it, relay operators on Ethereum observed that protocol-level censorship, led by Flashbots, reached 80% in November 2022, meaning blocks of an equal measure were regulated under OFAC.

Post-merge daily OFAC compliant blocks

MEV Watch now tracks that this proportion has been slashed significantly, with blocks proposed by compliant relays now at 26%.

Ethereum block finalization incidents aftermath

Last Thursday, the Ethereum blockchain suffered degradation as it endured block finalization issues for some three epochs at around 8:15 pm UTC. The block finalization issues came on the back of a surge in activity and staking rewards rates on Ethereum due to the resurgence of memecoins. Pseudonymous self-declared Ethereum community health consultant Superphiz.eth, said that though the precise cause was unknown, the resilience of the chain enabled it to recover. This meant that transactions continued unaffected.

Block finalization was restored at around 8:50 pm UTC as consultants noted that Ethereum's client diversity was a factor in Ethereum's quick resolution. However, in less than 24 hours, it recurred, going on for about an hour, with Superphiz.eth warning the community to expect a potential third event. Sam Martin, a Senior Analyst at Blockworks Research, shed light on the matter, explaining that Ethereum's problems with finalization had resulted in a brief but pronounced downturn in validator participation at the consensus layer.

Nevertheless, validation on the execution layer proceeded as usual. He emphasized the importance of diverse client representation among Ethereum's validators, citing this event as yet another testament to the significance of the same – the push to adopt minority clients. Ethereum core developer Eric Conner said the finality issues were due to a bug in some clients. According to Superphiz, the problem resulted from an increase in validators, leading to greater network traffic.

Syncing nodes essentially submitted old attestation data that was no longer useful, causing processors to become overloaded and creating a chain reaction of delays.

“About 3.68% of daily slots were missed and 253 blocks not proposed on time,” Glassnode said in the aftermath.

Though no end-users were impacted on the mainnet, the second incident caused an inactivity leak. Ethereum clients Teku and Prsym took steps to remedy the issue and encouraged users to update their nodes to avoid future occurrences of this nature.