The Great Reshuffling - The Daily Gwei #527
Lots of ETH will be finding a new home post-withdrawals.
The Ethereum Proof of Stake Beacon Chain went live on December 1st, 2020 and since then over 13.3 million ETH has been staked. Now, not all this ETH has been staked in the same place - solo validators, staking pools (centralized and decentralized), centralized exchanges - these entities make up the Beacon Chain we all know and love today.
Staking ETH is currently a one-way street - you send 32 ETH to the deposit contract, spin up a validator, and begin attesting to & proposing blocks (while getting paid in ETH to do it). If you want to stop being a validator, you can simply exit the active validator pool but your ETH won’t be available to you until probably 6-12 months after The Merge (when Beacon Chain withdrawals are expected to be enabled). Due to this, if you stake with a provider such as Coinbase and want to change to someone else, you won’t be able to until these withdrawals are enabled.
This is why I have a thesis that once withdrawals are enabled, we’re going to see a “great ETH stake reshuffling” where lots of ETH gets moved around between staking providers. Some reasons why people would move their stake around:
When someone first staked their ETH they didn’t have for solo staking but now they do so they withdraw from a centralized staking provider and set up a solo staking operation
Someone changes from a centralized staking provider to a decentralized one like Rocket Pool (which didn’t go live until this year)
A staker no longer trusts the provider that they originally staked with
1 or many providers are not sharing fee or MEV revenue with their pool so people would change to a pool that does share
Someone wants to change staking providers to improve the overall distribution of staked ETH
On top of the above, there will probably be lots of incentives offered to users once withdrawals are enabled in order to entice them to change where they stake. These incentives could come in the form of bolstered yield via token rewards or even front-loaded yield at the expense of the staking operator. The providers could also offer fee-free staking to new customers for something like 6 months in order to attract more stake to their pool. Regardless of what the incentives are, they will definitely exist and I expect many users to take advantage of them.
It remains to be seen how much stake “changes hands” once withdrawals are enabled but I expect it to at least be a non-negligible amount. All of this also doesn’t factor in the people who want to sell their ETH stake altogether but I think that’s orthogonal to my overall thesis. In any case, I’m excited to see what happens once withdrawals are enabled some time next year.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.