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Ethereum Staking Inflow Keeps Declining: Should We Be Concerned?

Ethereum dropping: a decrease in both price and staking inflow

 The transition to the Proof-of-Stake (PoS) consensus mechanism, known as the Merge, presented an enticing opportunity for individuals holding a minimum of 32 ETH to earn interest by participating in staking. However, the landscape is marked by the fact that approximately 35% of ETH's total supply remains stagnant in the wallets of a few major holders, with a significant portion scattered across centralized exchanges and decentralized exchanges (DEXs). Following the Ethereum Merge on September 15, 2022, there was a notable uptick in total staking participation, peaking at 404,704 unique addresses staking ETH on the Beacon Chain in early June. 

 However, since then, a shift in momentum has become apparent, both in terms of price and staking inflow. When it comes to price, cryptocurrency traders have observed a shift in the price action's character since July. This shift has taken on a bearish bias, as the price has struggled to achieve higher highs since mid-April. So, what is going on with crypto staking on the Ethereum network right now? 

The Ethereum network remains healthy despite the decline  

According to the latest data from the on-chain analytics platform CryptoQuant, the remarkable 25-fold surge in staking activity was closely tied to the Shapella upgrade, which was implemented on April 12. This pivotal upgrade granted validators the ability to retrieve funds that had been locked in the smart contract since December 2021.

Source: CryptoQuant

Surprisingly, instead of a mass exodus of funds, the number of validators swelled to over 900,000 as the fall season commenced, collectively staking more than 26 million ETH. But while that particular metric seems positive, a significant reduction of inflow is concerning, though it doesn't point to any issues with the blockchain network itself. In fact, Ethereum is one of the most stable and secure ecosystems in the industry, which is one of the reasons why we at CryptoStake are so big on ETH staking. 

Centralization is a real concern, not staking inflow  

While the metric tracks ETH holders opting to stake and earn rewards on Ethereum, it doesn't reveal withdrawal numbers. A real cause for concern would be a substantial increase in unlocked ETH, seen in validators deactivating nodes or abstaining from transaction validation. Should this occur, we would be facing a greater network centralization led by liquidity-staking providers like Lido Finance that manage billions of dollars of those who are staking Ethereum. 

In that light, non-custodial staking, offered by CryptoStake, presents a superior choice when compared to liquid staking because it safeguards the Ethereum network's decentralization principles while providing individuals the ability to stake their assets securely.