Update Oct. 8, 12:17 p.m. UTC: This article has been updated to include comments from Nansen’s Nicolai Sondergaard and RedStone’s Marcin Kazmierczak.
Update Oct. 8, 12:45 p.m. UTC: This article has been updated to include a comment from Falcon Finance’s Andrei Grachev.
Ethereum recorded its largest validator exit on record this week, with more than 2.4 million Ether worth over $10 billion awaiting withdrawal from its proof-of-stake network, but institutional participants are replacing much of that in the validator entry queue.
Ethereum’s exit queue surpassed 2.4 million Ether (ETH) worth over $10 billion on Wednesday. The spike in exits extended the validator queue time to more than 41 days and 21 hours, according to blockchain data from ValidatorQueue.com.
Validators are responsible for adding new blocks and verifying transactions on the Ethereum network, playing a critical role in its operation.
“Large withdrawals always mean there is a chance that tokens can be sold, but it does not necessarily equal sales of tokens,” said Nicolai Sondergaard, research analyst at crypto intelligence platform Nansen, adding that “there is no need for concern from this alone.”
While the $10 billion withdrawal queue is significant, validators are most likely “consolidating from 32 ETH to 2,048 ETH stakes for operational efficiency,” according to Marcin Kazmierczak, co-founder of blockchain oracle company RedStone.
This includes growing inflows into liquid staking protocols for improved “capital efficiency,” he told Cointelegraph, adding:
“A large part of withdrawn ETH is redeployed within DeFi, not sold.”
“The 44+ day withdrawal wait time creates a natural throttle preventing supply shocks,” he explained, adding that Ether’s daily volume of $50 billion is still five times larger than the validator queue.
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Ethereum’s growing validator queue may also signal “growing demand for native yield,” according to Andrei Grachev, founding partner at synthetic dollar protocol Falcon Finance.
“Mass selling is unlikely since most stakers are allocating for onchain returns, not exit liquidity,” as Ether is evolving from a speculative asset into a “yield-bearing layer of capital,” he said.
$10 billion Ethereum exit queue raises sell pressure concerns
The surge in pending withdrawals has sparked renewed concern over potential sell pressure for Ether holders.
While this does not mean that all validators are looking to take profit, a significant amount of the $10 billion may be sold, considering that Ether’s price has risen 83% over the past year, according to Cointelegraph’s price index.
Adding to the concerns about selling pressure, the validator exit queue is about five times larger than the Ethereum entry queue, which currently holds over 490,000 Ether set to be staked, with a wait time of eight days and 12 hours.
While short-term selling pressure concerns persist, the $10 billion withdrawal does not threaten the Ethereum network’s stability, which still boasts over 1 million active validators staking 35.6 million Ether, or 29.4% of the total supply.
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The development comes a day after Grayscale staked $150 million in Ether on Tuesday, following the crypto-focused asset manager’s introduction of staking for its Ether exchange-traded products, making it the first US-based crypto fund issuer to offer staking-based passive income for its funds.
On Wednesday, Grayscale deposited another 272,000 Ether worth $1.21 billion into the staking queue, meaning that the company accounts for “the majority of coins currently awaiting staking activation,” according to onchain analyst EmberCN.
Despite the ballooning validator exits, Ether’s momentum continues to be driven by institutional inflows via exchange-traded funds (ETFs) and corporate treasuries, Iliya Kalchev, dispatch analyst at digital asset platform Nexo, told Cointelegraph:
“Institutional and corporate treasuries now hold over 10% of ETH’s total supply, while October ETF inflows have already exceeded $620 million.”
“The data reflect Ethereum’s evolution into a yield-bearing, institutionally recognized asset used both for infrastructure and collateral purposes,” he added.
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