Ethereum Staking Pool Dynamics Shift, ETH Supply Turns Deflationary

The Ethereum staking pool has witnessed a substantial shift in dynamics, marked by a growing number of validators voluntarily exiting since October, according to the latest research report from Glassnode. This development, though not as headline-grabbing as recent events such as the resignation of Binance CEO CZ, holds significant implications for the Ethereum network and its supply dynamics.

The growth rate of the #Ethereum validator set has slowed in recent weeks as an increasing number of validators voluntarily exit, slowing the rate of ETH issuance.

Alongside increasing ETH burnt via EIP1559 due to growing network activity, the ETH supply has turned… pic.twitter.com/xMrQRe7opO

— glassnode (@glassnode) November 28, 2023

The trend of increasing validator exits began in October, following the Shanghai upgrade that enabled stake withdrawals. This surge in exits, averaging 309 validators per day initially, has since intensified, reaching an average of 1018 validators per day in early November. The Total Effective Balance, representing actively staked ETH, has experienced its first decline since the Shanghai upgrade, slowing its growth rate.

Notably, these exits are primarily voluntary, driven by stakers independently choosing to leave the pool instead of slashing events resulting from protocol rule violations. Centralized exchanges (CEXs), particularly Kraken and Coinbase, have dominated stake withdrawal events, potentially signaling a shift in investor preferences or regulatory concerns.

Market Response To Ethereum

While the Ethereum staking pool dynamics unfolded, the digital asset industry faced another significant development: the resignation of Binance CEO CZ. The $4.3 billion settlement with authorities following this event was perceived by many as a turning point, marking the end of the ‘wild-west’ years in the industry.

The market response to CZ’s resignation was a moderate 9.1% decline in the price of BNB, notably less severe than previous drops triggered by regulatory events. However, the Binance exchange experienced a temporary uptick in withdrawal activity across major assets, with DeFi ‘blue-chips’ and major cryptocurrencies seeing a decline in balances.

In the days following the resignation, these balances recovered, indicating a return to net inflows and a level of trust users have in the Binance platform. The settlement requirement for US regulatory oversight over the next three years could further enhance user confidence.

Parallel to the Ethereum staking pool dynamics, the Ethereum supply has undergone a notable transformation. The slowing growth rate of validators and the decline in the Total Effective Balance have contributed to a decrease in daily ETH issuance. Simultaneously, the burning of ETH through EIP1559, driven by increased network activity, has again turned the ETH supply deflationary.

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