Ethereum Validators Queue Thins Out: What’s Behind the Trend?

The decline in Ethereum staking validators queues and rewards may be temporary, with experts eyeing institutional investors as the next wave.

In a surprising turn of events, the line-up of new staking validators wanting to join the Ethereum network hit a temporary low, bottoming out at zero just yesterday. While it has bounced back to 996 validators, this number pales in comparison to its June 10 peak of 96,500 validators. At that time, anyone wanting to be a validator faced a wait time of over 45 days, according to data from Beaconcha.in. This shift may signal a declining interest in Ethereum staking, but what factors contribute to this dip?

Declining Rewards and Market Conditions

One of the key contributors to this slowdown in staking interest is the reduction in rewards. Back in June, Ethereum staking offered a yield of 5.2%, which has since shrunk to 3.5%, again as per Beaconcha.in data. This decline in yield coincides with a bearish market, and according to industry insiders, it may signify a temporary slowdown in the staking market.

Staking in Ethereum involves validators who propose and validate new blocks. These validators receive a reward for their work, provided they stake a minimum of 32 ETH. However, there’s a daily limit on how many validators can enter or leave the process—set at 3,600. When the interest in staking spikes, as it did following the Shapella upgrade, queues form. The Shapella upgrade, which combined the Shanghai and Capella proposals, enabled the withdrawal of staked ETH for the first time since Ethereum staking launched in December 2020. This led to an increase in staking demand post-upgrade.

Back to Natural Staking Demand

Experts suggest that the current situation could be a return to the “natural” staking demand that existed before the Shapella upgrade. Data supports this view, showing that Ethereum deposits have been steadily declining since May, coming close to pre-Shapella levels. As of now, 27,779,142 ETH, or 23.1% of Ethereum’s circulating supply, remains staked across 864,898 validators, according to data from Nansen.

While the decline in validator queues and staking rewards might look concerning, some experts predict that institutional investors will lead the next wave of staking. However, a gap in understanding what staking actually involves could slow down this process. The primary targets for Ethereum staking might shift towards family offices and asset managers who already possess Ethereum balances.

Adding to this complexity, the current high yields in government bonds are making them an attractive investment. Current data shows that short-term U.S. treasury notes offer a yield of 5.35%, which could divert potential investors away from staking.