The actual figures for stake withdrawal fell between our initial estimate and the maximum possible amount. During the first week, a total of 856k ETH in rewards and 232k ETH in unstaked funds were observed. Notably, partial withdrawals constituted 80% of the overall amount of released ETH.
The correlation between the estimated annual percentage rate (APR) for validators and the number of active validators is negative. Currently, there are 561k validators in the staking pool, resulting in an estimated APR of 4.27%. To comply with the staking protocol, the maximum effective balance for validators is set at 32 ETH. This means that any rewards earned by a validator cannot be redeployed until the upgrade takes place. Prior to the upgrade, the average balance per validator had increased to 34 ETH, resulting in 2 ETH that remained effectively inactive.
After the upgrade and the initial round of automatic reward withdrawals, the average balance has decreased to 32.39 ETH. We anticipate that the average balance will continue to hover around this value going forward, as rewards are automatically transferred back to the staker.
Consistently skimming and transferring rewards back to the Ethereum mainnet has proven to enhance the efficiency of stake utilization. The amount of ineffective balance has significantly decreased from 1.12M ETH prior to the Shanghai update to 223k ETH at present. Consequently, we observe that a substantial 98.1% of the stake is now effectively utilized for network security purposes.
As of today, a total of 48,341 validators have exited, amounting to 1.55M ETH ($2.93B). Unsurprisingly, the day after the Shanghai/Capella upgrade 14,249 validators exiting, which remains the largest daily count. After this peak, exit events quickly tapered off, having levelled off to between 300 and 700 per day.
There was also an incident where 11 validators were slashed shortly after the update, which was attributed to human error by one of the node operators of the liquid staking provider, Lido.
Despite the increased activity surrounding validators exiting and depositing, the overall composition of the Staking Pool has remained relatively stable. Among the staking providers, Kraken experienced the highest number of exiting validators but only reduced its total stake by 1.1%. Similarly, Binance reduced its stake by approximately 0.5%. On the other hand, Rocket Pool emerged as the top gainer, increasing its stake by 2.3%, while stakefish gained 1.7%.
In terms of market share, liquid staking provider Lido continues to hold the largest portion with a dominance of 33.5%. Following Lido, the centralized exchanges Coinbase and Kraken hold 11% and 7.1% respectively, representing significant shares in the staking services sector.
Considering that DeFi serves as a primary hub for ERC20 tokens, stablecoins, and increasingly NFTs, people expect a strong performance from tokens associated with these protocols. However, the supply-weighted price index for DeFi, measured in USD and ETH, continues its significant decline, having dropped over 90% against both benchmarks since early 2021.
Considering that DeFi serves as a primary hub for ERC20 tokens, stablecoins, and increasingly NFTs, people expect a strong performance from tokens associated with these protocols. However, the supply-weighted price index for DeFi, measured in USD and ETH, continues its significant decline, having dropped over 90% against both benchmarks since early 2021.
While some argue that DeFi tokens fail to reflect the true value of their underlying projects, I believe that, collectively, the market performance of these tokens serves as an indicative measure of investor interest in the entire DeFi sector.
The total value of the DeFi Blue-Chips reached $45B at its highest point and has since steadily declined. Currently, the DeFi market cap stands at only 12% of its all-time high. Interestingly, since the Great Deleveraging in 2022, the valuation of DeFi tokens appears to align with the total value locked in DeFi protocols. This suggests that investor confidence may indeed be influenced by the performance of the underlying protocols.
After ‘DeFi Summer’ in January 2021, DeFi tokens had a more significant bullish rally compared to ETH. However, this peak was short-lived, followed by a massive drop in May 2021, and a continuous decline thereafter. Even during the second half of the 2021 bull cycle, DeFi tokens were less responsive to upward market movements, possibly due to the prevailing preference for NFTs. The DeFi index failed to surpass its previous all-time high in May, remaining 42% below it, despite ETH prices reaching new records in November 2021.
Comparing the performance of the DeFi Index to ETH since the May 2021 ATH reveals significant underperformance. During the second half of the 2021 bull cycle, ETH rallied 40% above its previous peak, while DeFi tokens reached a lower high, down 43% from the May peak.
Over the past two years, two new sectors have emerged in the Ethereum ecosystem: GameFi and Staking. Both sectors have generated varying levels of investor interest, with GameFi nearly surpassing DeFi in mid-2022. The Staking industry, represented by Liquid Staking Protocol tokens, has experienced significant growth since the start of 2023, with the aggregated market cap surging from $505M in Jan-2023 to over $3.20B in Apr-2023. Considering these sectors as part of the broader Ethereum economy, and in the context of EIP1559 burn, we can anticipate that some value from these sectors will also contribute to the valuation of ETH. Thus, we can compare the market caps of these sectors relative to the ETH market cap.