ETH Stakers are Withdrawing Rewards, Not Principal

Stakers are sticking around.

In the day since Ethereum’s long-awaited “Shapella” upgrade, people and entities that have staked Ether have largely withdrawn rewards accrued from their staking, rather than their principal.

More than 95% of withdrawals — more than 172,000 Ether — were staking rewards, according to TokenUnlocks. The remaining 5% was users’ original stake, meaning those users had exited staking entirely and would no longer participate in Ethereum’s consensus mechanism, the method it uses to order and confirm transactions.

ETH withdrawals over time. Source: Token Unlocks

Ethereum stakers are signaling most will continue participating in the network, even if they’re free to leave. Whether they stick around impacts Ethereum security, which is maintained by ETH deposits, and Eth price, which would come under pressure if all participants rushed to sell their stake.

But that could change.

Kraken Stakers

There are limits on the amount of Ether that can be withdrawn each day, and users and entities that would like to withdraw their principal have been placed in a queue.

Of the 833,000-plus Ether locked in the queue, almost two-thirds belong to Kraken, according to crypto data provider Nansen. The company bowed to pressure from the Securities and Exchange Commission earlier this year and agreed to cease offering its staking product in the U.S.

The Ether in the queue amounts to more than 4% of the 19.1M Ether eligible for withdrawal, a figure that includes staking rewards.

The Merge

When Ethereum underwent an upgrade called “the Merge” last year, it changed its consensus mechanism, swapping the energy-intensive Proof-of-Work with a Proof-of-Stake blockchain that had been running in parallel since December 2020. Proof-of-Stake requires that users who contribute to Ethereum’s consensus post 32 Ether as collateral, collateral that is seized in the event they misbehave.

But that collateral, or stake, could only be deposited, not withdrawn — until the Shapella upgrade went live on Wednesday.

The effect the upgrade would have on Ethereum and the price of Ether was hotly debated in recent months. On the day after the upgrade, Ether topped $2,000 for the first time since May 2022, just before the collapse of DeFi protocol Terra.

Withdrawals Top Deposits

Meanwhile, withdrawals have topped deposits by a small margin, with the amount of staked Ether falling by about 120,000 Ether, or 0.6%, according to Nansen.

Eth deposits vs. withdrawals. Source: Nansen

Despite the recent rally, more than 70% of people who staked Ether are still underwater, according to Hildobby, a pseudonymous data analyst for crypto venture capital firm Dragonfly. That means most staked Ether is worth less today that it was when it was staked.

The average price of Ether when it was staked is $2,136, according to Nansen.

Nevertheless, staking experts believe the benefit of enabling withdrawals will outweigh any sell pressure it might cause in the long-term.

“While some believe it’ll lead to an increase in sell pressure, I see it the other way around: [Shapella] will strengthen the confidence market participants have in staking ETH to generate yield,” Daniel Bar, the founder of Bitfwd Capital, previously told The Defiant.