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About 70% of institutional investors in Ethereum (ETH) participate in ETH holdings, and 60.6% of them use third-party platforms.
The Ethereum Staking Landscape At A Glance
According to a report by Blockworks Research, 69.2% of institutional investors holding Ethereum are involved in holding the platform’s ETH token. Of these, 78.8% are investment firms and asset managers.
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Notably, slightly more than one in five institutional investors – or 22.6% – of respondents said that ETH or ETH-based liquid staking tokens (LST) make up more than 60% of their total portfolio.
The report notes a seismic shift in the Ethereum staking landscape since the network switched from proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanism during the development of Merge.
Currently, there are close to 1.1 million on-chain validators in the network. After the merger, Ethereum network participants are allowed to withdraw their ETH only after the development of Shapella in April 2023.
After the first phase of ETH withdrawals, the network saw steady inflows, indicating strong demand for ETH staking. Currently, 28.9% of the total supply of ETH is staked, making it the network with the highest dollar amount of assets involved, with a value of over $115 billion.
It is worth noting that the annual yield from ETH taxed is about 3%. As more ETH is staked, the yield decreases proportionally. However, network validators can also earn more ETH through significant transaction fees during periods of high network activity.
Third Party Staking Closes Solo Staking
Anyone can participate in ETH staking, either as a solo participant or by sending their ETH to a third-party platform. While individual staking gives participants full control of their ETH, it comes with an upper entry barrier of at least 32 ETH – worth over $83,000 at the current market price of $2,616.
Conversely, owners can contribute as little as 0.1 ETH through third-party contributors but must give up some degree of control over their assets. Recently, Ethereum founder Vitalik Buterin he insisted the need to lower the entry requirements for individual ETH stakeholders to ensure greater network isolation.
Currently, about 18.7% of stakeholders are solo stakers. However, this trend shows that solo staking is losing popularity due to the high entry limit and the ineffectiveness of locked funds. The report explains:
Once locked in a stake, ETH can no longer be used for other financial transactions throughout the DeFi ecosystem. This means that one can no longer provide liquidity to various DeFi primitives, or pledge one’s ETH to take out a loan against it. This presents an opportunity cost to individual participants, who must also account for the amount of staked ETH network rewards to ensure they maximize their risk-adjusted yield potential.
Because of this, third-party staking solutions are very popular among ETH stakeholders. However, such platforms – governed by centralized exchanges and liquid staking regulations – raise concerns about network usage.
About 48.6% of ETH stakeholders using third-party platforms use just one integrated platform such as Coinbase, Binance, Kiln, and others.
The report highlights key factors driving institutional investors to use third-party platforms, including platform reputation, supported networks, pricing, ease of onboarding, competitive costs, and platform expertise.
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Although the Ethereum staking ecosystem is changing, this growth has not yet been reflected in the price of ETH. ETH has a huge value they didn’t work well against BTC for a long time, recently to gain following the US Federal Reserve’s (Fed) decision to reduce interest rates.
However, some crypto research companies still exist and hope about the possible return of ETH against BTC later this year. As of press time, ETH is trading at $2,616, up 0.8% in the last 24 hours.
Featured image from Unsplash, Charts from Blockworks Research and Tradingview.com
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