Entities controlling their wallets currently hold nearly 90% of the circulating Ethereum, the world’s second-largest cryptocurrency by market capitalization. This has caused the amount of ETH held on cryptocurrency trading platforms to reach its lowest point since 2015.
The trend suggests a shift towards a more decentralized approach to cryptocurrency ownership. On-chain analytics provider Santiment reports that the amount of ETH available on exchanges is currently at its lowest since July 2015, comprising just 10.31% of the total supply.
😮📊 #Ethereum is now being held in self custody and away from exchanges at the highest level since the week the token was introduced nearly 8 years ago. This essential all-time low ratio of $ETH on exchanges (10.31%) indicates confidence from #hodlers. https://t.co/VPwlCjzbAN pic.twitter.com/VB2r57xhQl
— Santiment (@santimentfeed) March 27, 2023
Growing concerns regarding the safety of exchanges and the importance of investors having complete authority over their assets have been the driving force behind the increase in self-custody. Additionally, the surge in decentralized finance protocols on the cryptocurrency network has resulted in an escalating requirement for $ETH on-chain.
If a great demand for ETH arose, its price would increase because there is currently only a small amount of the cryptocurrency available for purchase on exchanges. CryptoGlobe reported that the switch from PoW to PoS has taken over $100 million worth of ETH out of circulation.
The surge in self-custody can be attributed to rising apprehensions regarding the safety of exchanges and the desire of investors to exercise complete authority over their assets.
Furthermore, the introduction of decentralised financial protocols on the Bitcoin network has increased demand for on-chain $ETH. Limited supply of crypto and high demand can increase its value, particularly if exchanges maintain sufficient ETH reserves.
Deflationary Trend In Ethereum Supply
The cryptocurrency’s deflationary trend has grown over time, with its supply reducing by almost 66,000 ETH in 180 days following the network’s merging update, to the point where there are presently 120,456 ETH circulating on the market.
The implementation of EIP-1559 led to a decrease in Ethereum’s circulating supply and increased transaction fee burn. EIP altered the transaction fee system on a network. Furthermore, users pay a base fee for processing by validators and can tip for faster processing.
Staking Ethereum generates income for holders and exchanges by offering users a staking service. Users can earn rewards by locking their ETH on-chain and maintaining liquidity through a separate token. Exchanges offer a portion of the rewards in exchange.
Coinbase, a Nasdaq-listed crypto exchange, earned $200 million+ in Q4 2022 via staking, earning, and custody services. The activation of Ethereum’s long-awaited Shanghai upgrade on the network’s mainnet has moved closer.
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A final dress rehearsal was conducted on the Goerli testnet, which included a simulation of withdrawals of staked ETH. Upgrade activates, Ethereum completes full transition to PoS network. Validators can withdraw staked ether and earn rewards for block validation.