Original title: "Twists and Turns"
Original author: Alice Kohn, Glassnode
Original translation: Lucy, BlockBeats
Editor's Note:
Glassnode summarized and analyzed the market hot data in the past week, pointing out that the number of Ethereum staking validators exiting the pool has gradually increased recently, resulting in a slowdown in the growth rate of ETH issuance. At the same time, a surge in network activity, particularly driven by token transfers and stablecoins, has led to an increase in transaction demand, which in turn has put upward pressure on gas prices, and an increase in daily ETH fees burned via EIP1559. The combination of these two forces has caused the global ETH supply to become deflationary again.
The growth of the Ethereum validator set has slowed in recent weeks, with an increasing number of validators choosing to voluntarily exit. This has led to a slowdown in the issuance of ETH. At the same time, with the increasing number of ETH burned via EIP1559, coupled with the growth of network activity, the supply of ETH has become deflationary again.
Since October, the Ethereum staking pool has experienced a significant trend change, marking an increasing number of validators choosing to exit. This change is correlated with a broader bullish trend in the digital asset market as a whole.
The increase in validator exits has led to a decline in daily ETH issuance, which is related to the amount of ETH active in the staking pool.
At the same time, we observe an increase in network activity due to the renewed focus on tokens and stablecoins. This is manifested in an increase in gas fees destroyed through EIP1559, triggering a deflation in the Ethereum supply.
Undoubtedly, the most notable news of the past week was the resignation of Binance CEO CZ. The settlement with the authorities amounted to $4.3 billion, and many saw this key event as a sign of the end of the "Wild West" era of the digital asset industry.
Following the announcement, BNB's price experienced a -9.1% decline. However, compared to previous price declines, such as the -24% drop when the SEC announced the charges, the market reaction was relatively mild.
Following the news, Binance exchange saw an uptick in withdrawal activity for major assets. In the first 24 hours, the combined balance of a range of DeFi "blue chips" fell by -6.7%, while the balances of BTC, ETH, and stablecoins fell by -4.4%, -4.9%, and -2.2%, respectively.
However, in the six days following CZ’s resignation, these trading balances have recovered, with all four token classes seeing slowing outflows and even net inflows. In many ways, this shows the level of trust users have in the Binance platform. It can also be argued that confidence could increase further given the regulatory requirements of US regulators over the next three years.
While not making as much headlines as the Binance settlement, the Ethereum staking pool has undergone notable changes since the beginning of October. Currently, an increasing number of validators are exiting the staking pool.
Shanghai enabled staking withdrawals, which was followed by a large number of validators exiting, claiming rewards, and re-adjusting their staking providers and settings. During this time, exit events averaged 309 validators per day.
Since the beginning of October, we have seen a gradual increase in exit events, reaching an average of 1,018 validators per day. This upward trend is consistent with the recent upward trend in the spot price of the digital asset market.
As a result, the total effective balance of ETH representing active participation in the Proof of Stake consensus in the staking pool has slowed in growth and is currently experiencing its first decline since the Shanghai upgrade.
The slope of growth in the total effective balance began to flatten in mid-October, averaging 0.1% to 1% per day, slowing the growth rate since May by more than half.
When examining the exiting validators in more detail, we can see that over the past eight weeks, they have been driven primarily by voluntary exits. Voluntary exits are those stakers who independently choose to exit the staking pool. This is distinct from slashing, the penalty faced by validators who violate the protocol rules.
In the same time frame, only two slashing events occurred, one of which was a major event involving 100 new entrants being slashed for signing two different blocks on the network at the same time.
Exiting validators can be further categorized based on the type of staker they belong to. This reveals some interesting trends:
· CEXs have been dominating staking withdrawal events since October, with Kraken and Coinbase seeing the most significant outflows.
· Liquid staking providers also experienced some minor reductions in staking, with Lido remaining the largest player in the space.
This investor behavior could be driven by a number of factors:
· Investors choosing to change their staking setups, such as moving staking from CEXs to liquid staking providers (perhaps due to ongoing regulatory concerns).
· Investors with access to US capital markets may be moving capital into safer assets, such as US Treasuries, as interest rates remain high relative to ETH staking returns.
· Investors may also be seeking greater liquidity in ETH holdings in anticipation of an upcoming market upswing, rather than less liquid staked ETH.
Kraken and Coinbase stand out in terms of withdrawals, while among liquid staking providers, Lido leads in terms of exits. However, these same entities, led by Lido, are also the top recipients of staked deposits, demonstrating the net stickiness and dominance of these large pools.
On a net change basis, Lido continued to grow and dominate, increasing its total staked balance by 468,000 ETH. On the CEX side, Coinbase and Binance saw net increases in staked balances, while Kraken saw a decrease in staked balances by 19,400 ETH. Among staking providers, HTX and Staked.us demonstrated the most significant decreases in staked balances, decreasing by more than 44,000 ETH each.
Consistent with the observed decrease in effective balance, ETH issuance has also decreased accordingly. The amount of ETH issued to validators each day depends on the number of active validators, or the total effective balance in the staking pool, respectively.
As the growth rate of validators slows and declines, the daily ETH issuance has also slowed accordingly. Over the past 7 days, the growth rate of ETH issuance has slowed by up to 0.5% per day. Notably, the issuance velocity has declined for the first time in recent days.
With the issuance velocity decreasing, we now turn our attention to the complementary side of the equation - the burn rate. Starting with the 2021 London hard fork, EIP1559's fee burning mechanism involves burning a portion of transaction fees, creating conditions for ETH supply to become tight in the face of elevated network usage.
Along with the rise in gas prices, which signals a growing demand for transactions on the Ethereum network, the number of ETH fees burned per day is also increasing. In October, we saw 899 ETH in ETH fees burned per day. Fast forward almost a month, and the cumulative fees burned have now reached 5,368 ETH.
We can also assess a detailed breakdown of gas usage between various transaction types. These metrics allow us to identify the activities that primarily lead to supply destruction.
After examining the two areas that have primarily driven adoption of the Ethereum network over the past four months, it is clear that NFT transactions and DeFi transactions have both contributed relatively little over the past four months, declining by -3% and -57% respectively. Both of these areas have seen declining adoption and have contributed little to the latest activity on the chain.
The recent surge in network activity can be largely attributed to token transfers and stablecoins. Token gas usage is up +8.2% over the past three months, while stablecoin gas usage is up +19%. This suggests that a light capital rotation into longer tail assets may be occurring as confidence in market strength grows.
Since the London hard fork, ETH has moved from net inflation to a state of equilibrium, or even absolute or deflation. The network experienced a brief period of net inflation between August and October due to lower network activity.
In recent weeks, the overall ETH supply has once again turned to net deflation due to a decrease in issuance velocity and a larger amount of supply being destroyed.
Ethereum staking pool dynamics have shifted significantly in recent weeks, with an increase in the number of validators exiting the pool. This has led to a slowdown in the growth rate of ETH issuance and the first reduction in staking pool balances since the Shanghai upgrade.
In addition, the recent surge in network activity, especially driven by token transfers and stablecoins, has led to higher transaction demand. This in turn puts upward pressure on gas prices, increasing fees for daily ETH burns via EIP1559.
The combination of these two forces has resulted in global ETH supply becoming deflationary again. In this context, the interaction of these factors highlights the dynamic response of the Ethereum network, supply, and to market activity and adoption trends.
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