Ethereum staking has evolved in the past year, but a large share of the staked coins are controlled by only 10 entities. The popularity of liquid staking and the first-mover advantage of some protocols meant not all validators were created equal when it comes to holding ETH. 

Ethereum (ETH) staking has changed in the past year, though the biggest problem remains the influence of large entities as validators. The liquid staking and re-staking hype in 2024 meant a large percentage of staked ETH has gone through only 10 entities. This opens up problems for stakers, including exploits when ETH is unstaked or withdrawn from validators.

Ethereum staking as a whole grew in the past 12 months, driven by higher confidence in ETH, as well as a renewal of DeFi integration. Ethereum’s validator count increased by 30%, reaching the 1M validator milestone in June. Inflows into the staking smart contract ranged between 600K to 1M ETH per month, becoming a key factor for scarcity despite slightly higher production of new ETH.

ETH staking accelerated after the Shanghai upgrade and after the launch of the first ETF based on Ethereum’s value. In general, ETH staking is helping shape the DeFi ecosystem through new asset classes and liquidity hubs. The current model of staking may not last much longer, as Vitalik Buterin has proposed new, lighter rules for validators, but so far, the 32 ETH lockup has helped with Ethereum scarcity.

Ethereum’s liquid staking is the most influential factor for locking ETH in the Beacon Chain. Liquid staking controls between 41-45% of all staked tokens, according to the Flipside Crypto report. 

The Beacon Chain hosts more than 34M ETH, distributed between 1,074,136 validators. Liquid staking increased to 14.2M from 11.3M ETH in 2023. Liquid staking peaked in June at 14.7M ETH locked. This share of locked tokens was controlled by some of the biggest entities in the ecosystem. 

Top 10 Ethereum stakers increased their influence

In total, Ethereum’s top 10 stakers controlled up to 48% of staked ETH as of September 2024. Those entities have the biggest influence when it comes to building new products, reusing the liquidity and value, or simply receiving the biggest share of ETH rewards. Additionally, eight out of the 10 stakers have increased the amount of ETH locked in the Beacon Chain contract.

The biggest growth came from EtherFi, which increased its stake by 11,700%. Upbit and Stakefish grew their respective shares by 68% and 52%. OKX and RocketPool were the only entities to see their stakes decline, due to users withdrawing their delegated ETH. LidoDAO remains the largest participant in ETH staking, increasing its share to 9.8M ETH from 8.8M in September 2023. Lido also remains the biggest DeFi entity on Ethereum.

The rewards, however, contracted slightly, from 3.2% annualized down to 2.8%. The decrease of 12% did not deter new deposits, but the economy of validators is shifting. The secure passive income drew in too many validators, distributing the reward among more entities.

At the same time, Ethereum gas fees decreased, leaving validators with smaller earnings. Some of the validators are not only motivated by direct payouts, or have other sources of passive income through liquid staking or re-staking.

For validators, the additional earnings from MEV bribes are also a key part of the Ethereum economy, which motivates the long-term lockup of the tokens. 

Additionally, not all of the 1M validators correspond to single users. In fact, Ethereum validators used only 230,251 wallets, which could run multiple validators, provided they held the required amount of 32 ETH. The average wallet interacting with the Beacon Chain lockup contract holds a share of 144.8 ETH and runs more than one validator.

The past year showed significant confidence for Ethereum, despite several market price setbacks. ETH abandoned its previous stability level of around $3,500, sinking to the $2,500 range, while leaving some stakers and validators underwater. However, the continued staking showed confidence in Ethereum’s ability to evolve and remain a long-term source of passive income.

Ethereum is still struggling with its value locked outside of liquid staking. DeFi on the Ethereum chain locks in $48.38B after a small drawdown. ETH traded at $2,621.86 after the latest market rally, though lagging behind the gains of Bitcoin (BTC).