What Does Ethereum’s Staking Record Signal for the Asset?

Not long after the U.S. Securities and Exchange Commission clarified its stance on staking, investors have dedicated a record amount of Ethereum to the network.

The amount of Ethereum pledged toward validating network transactions crossed 35 million on Tuesday, an all-time high representing 28.3% of the asset’s circulating supply, according to a Dune dashboard created by Dragonfly Capital data scientist Hildebert Moulié. At the same time, the number of validators earning rewards reached 1.1 million—a new record.

Although liquid staking solutions exist, the high water mark suggests conviction is growing for Ethereum, Carlos Guzman, a research analyst at crypto market maker GSR, told Decrypt.

“It dovetails with market expectations around ETH turning more optimistic and positive,” he said “People are maybe expecting the price to go up in the future, and therefore feeling more confident in terms of holding the asset.”

Late last month, Wall Street’s top cop said in a statement that it does not view staking activities as securities transactions, noting that a lack of clarity “artificially constrained participation in network consensus and undermined the decentralization […] of proof-of-stake blockchains.”

Although former SEC Chair Gary Gensler posited in 2022 that proof-of-stake assets could themselves be securities, the statement signaled individuals and institutions could participate, as asset managers seek to integrate staking rewards into exchange-traded funds.

Liquid staking protocols, such as Lido, allow a user to lock up their Ethereum, in exchange for a token pegged to the asset’s price, while still being able to earn rewards. Crypto asset manager Galaxy Digital said on Tuesday that it would work to bring staking to institutional investors.

Ethereum was recently changing hands around $2,500, a 5.4% decrease over the past day, according to crypto data provider CoinGecko. As of Tuesday, the amount of Ethereum staked is worth $90 billion, based on current prices.

In practice, the amount of Ethereum staked influences the asset’s issuance, or the rate at which new Ethereum is created. As more Ethereum is staked, the asset’s issuance increases at a diminishing rate, according to business development firm Etherealize.

“Even in an extreme hypothetical scenario—where the entire circulating ETH supply […] is staked and zero ETH is burned through network usage—the maximum possible inflation rate is capped at 1.51%,” the company said in a recent research report.

Unlike Bitcoin, where computers constantly crunch complex calculations to compete for fresh coins, Ethereum relies on validators that have locked up capital in exchange for the opportunity to participate in the process of validating transactions, since the so-called Merge in 2022.

Although it’s a relatively small amount, SharpLink Gaming, an online gambling marketer, said last week that it had deployed Ethereum in staking and liquid staking solutions as part of its corporate treasury strategy, totaling around 167,000 Ethereum worth roughly $418 million.

Edited by James Rubin