The introduction of the Shanghai update to the Ethereum mainnet a little more than a month ago made it possible for Ethereum validators to withdraw all or some of their staked Ether (ETH) tokens from the staking smart contract for the first time. As a result, the demand for ETH staking has increased significantly since then.
Wenmerge.com reports that the amount of time that an ETH owner must wait in order to join the Ethereum network as a new validator has increased to 27 days and 7 hours and that there are currently 50,398 prospective validators in the queue.
Token holders have the opportunity to put themselves up as network validators and earn a payout of about 4-5% annually by staking their tokens.
On the Beacon chain, ETH staking has been available since December 2020; however, staking withdrawals were not enabled until the upgrade that took place just the previous month.
Many investors may have been dissuaded from staking their ETH tokens previous to the adoption of withdrawals out of concern that their assets would be locked up for an unreasonably lengthy period of time. Now that withdrawal flexibility has been added to ETH staking, the perceived risk of this strategy has been significantly reduced.
In tandem with the increase in the number of validators that are currently standing in line to join the network, the amount of ETH tokens that have been staked into the staking smart contract has also increased by a significant amount.
Due to data provided by Glassnode, the total amount of Ethereum tokens that have been staked reached 21.652 million as of Monday. This represents an increase of around 3.5 million in the one month that has passed since the Shanghai upgrade.
Since the entire supply of ETH tokens was estimated to be around 120.08 million at its most recent count, this indicates that the staking participation rate is currently somewhat higher than 18 percent.
This is an increase from the approximately 15% that was the case before the upgrade, when the number of ETH tokens that had been staked was about 18.1 million, and the entire supply of ETH tokens was approximately 120.4 million.
Staking participation rates in the range of 60–70% are seen across competitor proof-of-stake networks like Cardano, which provide flexible staking contract withdrawals.
Ether staking isn’t fully flexible, and as a result, it’s possible that it won’t be possible to reach a staking participation rate that’s relatively as high as this one. Despite the fact that just little more than 50,000 ETH can be withdrawn from the staking contract each day, this is the maximum amount that can be removed.
Let’s say, for the need of argument, that 50% of people take part in Ether staking. Considering that the involvement rate is going up by about 3% every month, this could happen in less than a year.
That would entail an additional 38.4 million ETH tokens moving into the staking contract for ETH, which has lower liquidity.
Tokens of ETH that have not been staked will be all of a sudden become much rarer, which is expected to act as a tailwind for the price.
Now take into account the fact which the available quantity of Ether is likewise rapidly decreasing.
According to EIP1559, from August 2021, the Ethereum network burns all ETH tokens that are used to pay transaction fees. Glassnode’s data shows that the recent rise in transaction fees, which was caused by network delays caused by meme coins, led to a spike in the ETH burn rate, which caused Ether’s deflation rate to rise above 8% earlier this month.
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