The growth rate of Ethereum's validator pool has slowed in recent weeks, with more and more validators opting out. This has led to a slowdown in the issuance of Ethereum. At the same time, with the increasing number of Ethereum burned through eip1559, coupled with the growth of network activity, Ethereum's ** is once again showing a deflationary trend.
Since October, Ethereum staking pools have undergone a significant trend change, signaling an increasing number of validators opting out. This change is related to a broader bull trend in the digital asset market as a whole. The increase in validator withdrawals has led to a decrease in daily Ethereum issuance, which is related to the amount of Ethereum active within the staking pool. At the same time, due to the renewed focus on tokens and stablecoins, we have observed an increase in network activity. This is manifested in the increase in gas fees burned through EIP1559, triggering the deflation of Ethereum**. Undoubtedly, the most high-profile news of the past week has been the resignation of Binance CEO CZ.
The settlement with the authorities amounted to $4.3 billion, and many see this pivotal event as a sign of the end of the Wild West era for the digital asset industry. Following the announcement of this event, BNB's ** experienced -91% decline. However, the market reaction has been relatively modest compared to the previous ***, such as the -24% drop when the SEC announced the allegations. In the wake of this news, there was an uptick in major asset withdrawal activity on the Binance exchange. In the first 24 hours, the consolidated balance of a range of DeFi blue chips fell by -67%, while the balances of BTC, ETH, and stablecoins fell by -44%、-4.9% and -22%。
However, in the six days following CZ's resignation, these transaction balances have recovered, and all four token classes have seen a slowdown in outflows and even net inflows. In many ways, this shows the level of trust users have in the Binance platform. It can also be argued that confidence is likely to increase even further, given the regulatory requirements of US regulators over the next three years.
Validator exits.
While not making headlines like the Binance settlement, the Ethereum staking pool has undergone significant changes since the beginning of October. Currently, more and more validators are exiting staking pools. Staking withdrawals were enabled in Shanghai, followed by a mass withdrawal of validators, claiming rewards, and readjusting their staking providers and settings. During this time, the exit event averaged 309 validators per day.
Since the beginning of October, we've seen a gradual increase in dropouts, reaching an average of 1018 validators per day. This upward trend is consistent with the recent upward trend in the digital asset market spot**. As a result, the total effective balance of ETH, which represents active participation in proof-of-stake consensus in staking pools, has slowed down in growth and is now experiencing its first decline since the Shanghai upgrade. The growth slope of the total effective balance*** began to flatten out in the middle of the year, increasing by an average of 01 to 1 percent, slowing the rate of growth by more than half since May.
In a more detailed examination of exit validators, we can see that over the past eight weeks, it has been largely driven by voluntary withdrawals. Voluntary withdrawals are those who independently opt out of the staking pool. This is different from the penalty faced by validators who violate the rules of the protocol - slashing. During the same time period, there were only two cuts, one of which was a major event involving 100 newly entered validators who were cut for signing two different blocks on the network at the same time. Validators who exit can be further categorized based on the type of staker they belong to. This reveals some interesting trends:
CEXs have been dominating stake withdrawal events since October, with outflows from Kraken and Coinbase being the most significant. · Liquid staking providers have also experienced some slight staking reductions, with Lido remaining the largest player in the space. This investor behavior may be driven by a number of factors: · Investors choose to change their staking settings, such as transferring staking from a CEX to a liquid staking provider (likely due to ongoing regulatory concerns). Investors with access to U.S. capital markets may redirect capital to safer assets, such as U.S. Treasuries, as interest rates remain higher relative to ETH staking returns.
Investors may also be looking for greater ETH holding liquidity in anticipation of an upcoming market uptick** instead of less liquid staked ETH. Kraken and Coinbase stand out in terms of withdrawals, while among liquid staking providers, Lido leads the way in withdrawals. However, these same entities, led by Lido, are also the primary recipients of staked deposits, showing the net stickiness and dominance of these large pools.
On the basis of the net change, Lido continued to grow and dominate, increasing its total stake balance by 468,000 ETH. On the CEX side, Coinbase and Binance saw a net increase in their staking balances, while Kraken's staking balances decreased by 19,400 ETH. Among the staking providers, HTX and StakedUS showcased the most significant reduction in staking balances, each by more than 44,000 ETH.
In line with the observed decrease in effective balances, the issuance of ETH has also decreased accordingly. The amount of ETH issued to validators per day depends on the number of active validators, or the total effective balance in the staking pool, respectively. As the growth rate of validators slows and declines, so does the amount of ETH issued per day. Over the past 7 days, the growth rate of ETH issuance has slowed down by as much as 05%。It is worth noting that the pace of issuance has decreased for the first time in recent days.
With the rate of issuance decreasing, we now turn our attention to the complementary side of the equation – the burn rate. Starting with the London hard fork in 2021, EIP1559's fee burn mechanism involves burning a portion of transaction fees, setting the stage for ETH to become tight in the face of increased network usage.
Along with the rise in gas **, which marks an increase in the demand for transactions on the Ethereum network, the number of ETH fees burned each day is also increasing. We see the ETH burned fee reaching 899 ETH per day. Fast forward almost a month, and the cumulative cost of burning has now reached 5,368 ETH. We can also evaluate a detailed breakdown of gas usage between various transaction types. These metrics allow us to identify activities that primarily lead to burnout. After examining the two areas that have primarily driven adoption of the Ethereum network over the past four months, it is clear that both NFT transactions and DeFi transactions have contributed relatively little over the past four months, declining by -3% and -57%, respectively. Both areas are experiencing declining adoption and contribute little to the latest on-chain activity. The recent surge in network activity has been largely attributed to token transfers and stablecoins. The token's gas usage has risen by +8 over the past three months2%, while stablecoins have increased gas usage by +19%. This suggests that a capital-light rotation of longer-tail assets may be taking place as confidence in the strength of the market grows.
Since the London hard fork, ETH has moved from net inflation to equilibrium, even absolute or deflationary. The network experienced a brief period of net inflation between August and October due to lower network activity. In recent weeks, overall ETH has once again turned to net deflation due to a slowdown in the pace of issuance and a larger number of ** being burned.
Summary. Ethereum staking pool dynamics have changed significantly in recent weeks, with the number of validators exiting the pool starting to increase. This led to a slowdown in the growth of ETH issuance and a reduction in staking pool balances for the first time since the Shanghai upgrade. In addition, the recent surge in network activity, especially driven by token transfers and stablecoins, has led to an increase in trading demand. This, in turn, has created upward pressure on gas **, with an increase in ETH fees burned daily through EIP1559. The combination of these two forces has led to another deflation of global ETH**. Against this backdrop, the interplay of these factors underscores the Ethereum network,**, and the dynamic response to market activity and adoption trends.
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