Ethereum is riding a massive wave of growth, recently crossing the threshold of 35 million ETH staked in its new Proof-of-Stake (PoS) system. This amounts to 28.3% of their total circulating supply. This move underscores how crucial staking has become within the Ethereum ecosystem. This not only gives individual and institutional investors a way to earn yield but helps improve the security and efficiency of the network’s operations.

Since Ethereum’s transition to PoS in 2022, staking has developed into a cornerstone of Ethereum’s ecosystem. This increase in the amount of staked ETH is a clear sign that individuals are becoming more optimistic about the future health of the network. They view staking as a compelling mechanism to generate passive income.

Institutional Interest and Supply Dynamics

The spiking number of staked Ethereum has contributed to the largest drop in ETH’s liquid supply — that is the Ethereum available for trading — this year. This increased scarcity combined with increased demand may be enough to increase the value of ETH. ETH accumulation addresses, or addresses that are only holding Ethereum, recently hit an all-time high at 22.8 million ETH, showing a strong holding sentiment among investors.

Additionally, institutional interest in Ethereum staking continues to grow. BlackRock just went out on a limb by buying more than $100 million of ETH. This move indicates increasing acknowledgment of Ethereum as an investable asset. This institutional participation is more evidence that Ethereum has established itself among the top tiers of the cryptocurrency market.

Dominance of Liquid Staking and Centralization Risks

Liquid staking protocols, like Lido, have been critical to liquid staking becoming a driver of increased participation in Ethereum staking. Users can stake their ETH on these centralized platforms. Yet another liquidity retention feature are derivative tokens, which open up staking to a far broader user base. With Lido controlling more than 25% of all staked ETH, it is a clear leader of the liquid staking market.

Similarly, direct stakers on major exchanges such as Binance and Coinbase together hold a sizeable majority of staked ETH. Despite improving accessibility through a wider range of options, liquid staking protocols have drawn criticism for increasing centralization within the Ethereum network. The centralization of staked ETH with just a few large players can put the network’s decentralization and resilience at risk.

Staking Yields and Investment Opportunities

Investors gain the ability to earn passive income in Ethereum through staking. Yields usually sit between 2% and 4%, depending on which liquidity protocol you’re using. Lido has made staking more accessible by allowing users to lock up their ETH while retaining liquidity through derivative tokens.

These yields combine to make an attractive proposition for yield-hungry investors looking to stake. As more and more investors join, the pool of staked ETH keeps increasing. Because more ETH is staked, the network is more secure and efficient, which is a win-win for all participants in the Ethereum ecosystem.