Ethereum validator exit queue hits $3.2B as ETH nears record high

Validators are once again increasing the backlog of ETH waiting to be unstaked. The Ethereum validator queue jumped to a one-week high as the token rallied above $4,700. 

Ethereum validators are queueing to leave the Beacon chain, with the highest number of requests in the past week. The validator queue started growing in the past days, as ETH regained the $4,700 level and stood just below its all-time high. The new request for withdrawals came as ETH climbed from $3,800 to over $4,700. 

Validators have locked their tokens at a much lower price range for the most part, and some may want to lock in gains due to relatively slow annualized returns. Additionally, some of the unstaked tokens may be sent to specific leading validators or liquid staking protocols. 

The queue now holds 699,600 ETH, valued at over $3.2B, leading to a waiting time of over 12 days to unstake. The previous monthly peak did not prevent ETH from rallying, despite some pressure from whale sellers. More than 217K ETH were added to the queue just in the past two days. 

Since July 20, the queue to stake ETH has been smaller in comparison to the exit queue. The unstaking anomaly is the highest in a year, after months of relatively balanced activity. Only around 100K ETH are waiting to be staked. 

During the earlier stages of the ETH rally, both the entry and exit validator queues were on the rise. Now, the entry queue has diminished rapidly, as holders aim to retain their ETH as liquid as possible. 

ETH validator queue grows with price

The recent ETH rally above $4,000 coincided with the sudden spike in withdrawal requests. Previously, smaller regular withdrawals were part of the everyday activity, as some validators aimed to consolidate their stake to 2,048 ETH, instead of the older 32 ETH stake. 

Large-scale ETH withdrawals of over 1M ETH may start affecting the liquid staking token market. At this point, it remains uncertain what type of validators are unstaking, and how old their stake is. However, LidoDAO and other liquid staking protocols may de-peg, with repercussions for DeFi protocols like Aave and others. 

Currently, over 35M of all available ETH is locked on the Beacon Chain, and some of the recent withdrawals have been balanced by new deposits. Additionally, some of the growing crypto treasuries are earmarked for staking or liquid staking. 

Users are shedding liquid staking tokens 

One of the reasons for unstaking may be the need to move out of liquid staking tokens. Liquid staking tokens are used as collateral in DeFi protocols, but may be at risk of liquidation during market downturns. 

Covering some of the loans, de-risking, and moving back to ETH may be the main strategy for DeFi whales. Lido, EthFi, and Coinbase saw the biggest unstaking in the past month, leading to price anomalies in some of the related tokens like Wrapped Liquid Staked ETH.

Figment, Liquid Collective, Binance, and Kiln had net inflows in the past month, while Lido DAO had the biggest outflows, losing 281,824 ETH. The withdrawals are unwinding the previous leveraged trades for ETH, where liquid staking tokens were sent to Aave to borrow more ETH, and stake it again for rewards. 

During a bull market, the strategy could increase the available crypto, but in a market drawdown, it could lead to contagion and a series of liquidations. Additionally, as the lending is repeated, borrowing rates grow to unsustainable levels. 

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