Almost 70% of Ethereum (ETH) institutional investors participate in ETH staking, with 60.6% of them using third-party staking platforms.
Ethereum staking overview
According to a report by Blockworks Research, 69.2% of institutional investors who hold Ethereum are engaged in staking the platform’s native ETH token. Of these, 78.8% are investment and asset management companies.
Notably, just over one in five institutional investors (22.6%) of respondents said ETH or ETH-based Liquid Staking Tokens (LST) accounted for more than 60% of their overall portfolio allocation. The answer was yes.
The report notes that major changes have occurred in Ethereum's staking environment since the network moved from proof-of-work (PoW) to proof-of-stake (PoS) consensus mechanisms during the Merge upgrade.
Currently, nearly 1.1 million on-chain validators have staked 34.8 million ETH on the network. After the merger, Ethereum network participants were only allowed to withdraw ETH after the Shapella upgrade in April 2023.
After the initial phase of ETH withdrawals, the network has seen steady inflows, indicating strong demand for ETH staking. Currently, 28.9% of the total ETH supply is staked, making it the network with the highest dollar value of staking assets, with a value of over $115 billion.
It is worth noting that the annualized yield from staking ETH is around 3%. As more ETH is staked, the yield will decrease proportionately. However, network validators can also earn additional ETH through preferred trading fees during periods of high network activity.
Third-party staking overshadows solo staking
Anyone can participate in ETH staking, either as a solo staker or by delegating ETH to a third-party staking platform. Solo staking gives the staker full control over their ETH, but comes with a high barrier to entry of staking at least 32 ETH. This is worth over $83,000 at the current market price of $2,616.
Conversely, holders can stake as little as 0.1 ETH through third-party stakers, but they will have to relinquish some control over their assets. Recently, Ethereum co-founder Vitalik Buterin emphasized the need to lower entry requirements for ETH solo stakers to ensure the decentralization of the network.
Currently, approximately 18.7% of stakers are solo stakers. However, trends indicate that solo staking is losing popularity due to high barriers to entry and the inefficiency of locked capital. The report explains:
Once locked into staking, ETH cannot be used for other financial activities across the DeFi ecosystem. This means that it is no longer possible to provide liquidity to various DeFi primitives or take out loans using ETH as collateral. This is an opportunity cost for solo stakers, who must also consider the dynamic network reward rate for staked ETH to ensure they maximize risk-adjusted yield potential.
As a result, third-party staking solutions are becoming increasingly popular among ETH stakers. However, such platforms are dominated by centralized exchanges and liquid staking protocols, raising concerns about network centralization.
Nearly 48.6% of ETH stakers using third-party staking platforms use only one integrated platform, such as Coinbase, Binance, or Kiln.
This report explores the key factors that drive institutional investors to use third-party platforms, including platform reputation, supported networks, pricing, ease of onboarding, competitive costs, and platform expertise. It emphasizes the important factors.
The Ethereum staking ecosystem is evolving, but this growth is not yet reflected in the price of ETH. ETH has been significantly underperforming against BTC for a long time, but has recently gained momentum following the US Federal Reserve's decision to cut interest rates.
Nevertheless, some crypto research firms remain optimistic about the possibility of ETH reviving against BTC later this year. At the time of writing, ETH is trading at $2,616, up 0.8% in the past 24 hours.
