Ethereum validator exit queue pushes all-time high as profit taking extends

The Ethereum validator exit queue grows by the day, reaching all-time high levels. As ETH rallied, the network experienced its biggest outflow of validators.

Validators are leaving the Ethereum network, with a record number of unstaking requests as of July 25. In the past 10 days, the Ethereum network started an unprecedented withdrawal, as traders attempted to free up ETH. The validator exodus comes as ETH trades around $3,465.55.

The sudden increase in requests to free ETH from the Beacon Chain contract started on July 16, and initially looked like regular validator turnover. Soon, the queue grew to 688,356 ETH waiting to be freed up, valued at over $2.6B.

Any Ethereum freed up at this rate will not hit the market for a few days. Currently, the waiting time has grown to 11 days, also a record high. The current unstaking episode also shows that institutions may face obstacles when using the Beacon Chain, due to unpredictable unstaking episodes.

The Ethereum network still has over 2M validators, with no significant threat to network security. The final effect for ETH may be close to having a few large whales selling. Some of the early holders may also prepare the free ETH for treasuries or sell it to treasury companies in OTC deals.

Early Ethereum validators may seek to take profits

The chief reason for the rush to unstake may be to take profits, as ETH recovered as high as $3,800. A lot of validators have staked their coins at a much lower price, and may want to free up the value of their ETH.

The rollover in validators may be partially due to this year’s network upgrade, which allows for validators to deposit 2,048 ETH, instead of multiple deposits of 32 ETH.

The validator exodus also happened just as multiple companies started announcing ETH treasuries. The influence of SharpLink Gaming and Bitmine boosted demand for Ethereum as a long-term store of value.

Another 308,713 ETH are ready to be staked on the Beacon Chain, showing demand for passive income. Ethereum validator staking is seen as a viable option for a collection of ETF, and some corporate treasuries may also be partially locked for staking.

Lido DAO unstaking accelerates

The Lido DAO unstaking queue is also near an all-time peak. More than 223K ETH are waiting to be unstaked. In the past few days, waiting times for Lido DAO have more than doubled from 70 hours to over 150 hours on average.

At this point, almost all ETH is days away from entering the spot market. However, there are other use cases for the freed-up coins.

For one, some of the share of Lido DAO has flowed over to Binance’s staking program. Binance carries around 20% of staked ETH, with its own lively trade between liquid staking tokens and L1 ETH.

Currently, a market anomaly is raising demand for Binance’s liquid staking token. The price of WBETH is rising, with a significant premium of $3,957.52. Around 80% of the WBETH volumes rely on Binance, and traders can swap into Ethereum, thus not needing to go through the withdrawal queue.

While WBETH can be used for arbitrage, it is a limited opportunity, which may take days to complete.