A recent in-depth analysis from Coin Metrics sheds light on the burgeoning interest in staking on the Ethereum network following “The Merge,” emphasizing its pivotal role in validating and securing proof of stake (PoS) blockchains.
According to the Coin Metrics team’s weekly report, the Ethereum staking landscape has witnessed remarkable growth, with over 31 million ETH, amounting to approximately 26% of the supply and valued at $120 billion, actively staked by nearly 980,000 validators.
The robust security foundation established by this extensive staking activity has rendered attacks against the network prohibitively costly, as noted in the Coin Metrics report.
Staking pools and custodial staking platforms have played a crucial role in facilitating ETH staking, bringing together stakers and infrastructure providers. These platforms allow for the deposit of ETH in exchange for a tokenized claim on the staked capital, known as a liquid staking derivative (LSD). Lower barriers to entry and increased accessibility to yield on ETH have contributed to the sector’s rapid adoption.
Various liquid staking derivatives, including Lido’s stETH, Coinbase‘s cbETH, and Rocket Pool’s rETH, have emerged, offering diverse token models and driving liquidity across decentralized exchanges (DEXs), lending markets, stablecoin products, Layer-2 solutions, and restaking applications.
Coin Metrics’ latest State of the Network report delves into the market dynamics and risks associated with the liquid staking sector, focusing on the largest players in the market. While the sector has experienced substantial growth and integration within the on-chain ecosystem, it also presents crucial trade-offs that necessitate careful monitoring of associated market risks.
As Ethereum stakeholders consider implementing staking-related Ethereum Improvement Proposals (EIPs), such as “max-effective balance” and “max churn-limit,” the trajectory of the sector is expected to evolve further, according to Coin Metrics. Liquid staking tokens are also poised to play a significant role in the emerging practice of “restaking,” popularized by EigenLayer, offering enhanced yield opportunities by leveraging Ethereum’s economic security for validating other networks.
However, this introduces considerations regarding the concentration of liquid staking tokens into restaking protocols, liquidity in secondary markets, and the integration of “liquid restaking tokens” (LRTs) across the on-chain ecosystem.
In conclusion, Coin Metrics underscores the importance of monitoring the intersection of liquid staking tokens within the restaking ecosystem, identifying it as a key trend as the sector continues to evolve.
