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Crypto analysts have reported that Ethereum's Shanghai upgrade resulted in a significant increase in weekly ETH deposits for staking, with a large portion of the influx coming from institutional staking service providers and investors who are reinvesting their rewards after withdrawing. This surge in deposits has set a new record.
Tom Wan, an analyst at 21Shares, has created a data dashboard using Dune Analytics that shows investors have deposited more than $1 billion worth of 571,950 ETH tokens into staking contracts. This indicates a significant level of confidence among investors in the potential returns of staking on the Ethereum network.
21Shares' blockchain data reveals that the recent weekly influx of tokens into ether staking was the largest ever recorded in the almost two-and-a-half years since ether staking has been available. This highlights a growing trend of investors placing their trust and capital into staking on the Ethereum network.
On April 12th, the Ethereum blockchain successfully implemented its much-anticipated tech upgrade, which is commonly referred to as Shanghai or Shapella. This upgrade marked a significant milestone in the transition of the Ethereum network from a mining-based system to one that validates transactions through staking. The upgrade also enabled the withdrawal of tokens that were previously locked up in staking contracts, which was a crucial final step after last year's Merge.
The Ethereum network's native token, ETH, saw a surge in value following the successful implementation of the highly anticipated Shanghai upgrade. However, in a broader crypto market downturn last week, ETH and other major cryptocurrencies experienced a significant drop in value. This market sell-off was primarily driven by concerns surrounding macroeconomic factors such as inflation and the possibility of an impending recession. Despite the setback, many investors remain optimistic about the long-term potential of cryptocurrencies and the Ethereum network.
Institutional ETH staking
Wan tweeted that the surge in deposits for ETH staking was mainly driven by institutional staking services.
According to 21Shares' Dune dashboard, since the launch of the Shanghai upgrade, the top five institutional-grade staking service providers, namely Bitcoin Suisse, Figment, Kiln, Staked.us, and Stakefish, have staked a total of 235,330 ETH combined, which is valued at approximately $450 million. This highlights the increasing adoption of staking among institutional investors, as they seek to capitalize on the potential returns offered by staking on the Ethereum network.
Last week, CoinDesk stated that the Shanghai upgrade has increased interest in ETH staking among institutional investors, including those in traditional finance firms.
In a separate tweet, Wan pointed out that the surge in interest also underscores how allowing withdrawals from Ethereum's proof-of-stake chain has substantially mitigated the liquidity risk that comes with token lock-ups.
Restaking rewards
Anders Helseth, Vice President of digital asset market research firm K33 Research, provided further insight via email, suggesting that another likely driver behind the record inflow is the decision by investors to reinvest their staking rewards that were previously earned and withdrawn.
Investors withdrew approximately 900,000 ETH in staking rewards within the first eight days after the upgrade, while staking deposits surged to around 667,000 tokens. This amount is a significant increase of six times the quantity deposited during the final eight days prior to the withdrawal feature being enabled, indicating a surge in investor interest.
Helseth noted that this trend suggests investors chose to re-stake a substantial portion of their withdrawn rewards.
Reduced selling pressure
In her Monday newsletter, Noelle Achison, a market analyst and former head of research at Genesis Trading and CoinDesk (both subsidiaries of Digital Currency Group), stated that the Shanghai upgrade had resulted in a "net positive" outcome in regards to the overall staking inflows.
“So far, the rhythm of new deposits has exceeded the amount leaving the network, if rewards can be excluded,” she said.
The rationale for distinguishing between reward withdrawals and full exits stems from the mechanics of Ethereum's staking system. To participate in securing the network and earn rewards, individual stakers or staking services must lock up precisely 32 ETH to open a node. However, retaining the accumulated rewards within the validator node does not enhance its returns. Noelle Acheson clarified that it is rational for stakers to withdraw rewards, pool the tokens, and create new nodes to boost potential returns.
“It seems this is what is happening,” she said. “Overall net inflow has been positive, which suggests that a significant portion of these rewards are being restaked.”
The trend of reinvesting rewards is also potentially a positive sign for ETH price as it reduces sell pressure, according to Acheson, “which is likely to end up being much less than many feared."
Source Coindesk
