Why Ethereum Staking is Surprisingly Low – And Why That Might Be Bullish

Ethereum, the second-largest cryptocurrency, is a powerhouse in the Web3 space. But when it comes to staking, a surprisingly small percentage of its total supply is locked up compared to other major blockchains. Only 14.3% of all Ethereum is staked. Intriguingly, this number even dipped slightly after the highly anticipated Shapella upgrade, which enabled staking withdrawals. This might seem counterintuitive, right? Why aren’t more people staking their ETH? Especially when networks like Cardano and Solana boast much higher staking percentages. Let’s dive into why this seemingly low staking rate on Ethereum might actually be a bullish signal.

Ethereum Staking: Lower Than You Think?

According to recent data, and as highlighted by Web3 investor Ryan Berckmans, Ethereum’s staking ratio is considerably lower than many of its layer-1 competitors. While some might see this as a weakness, Berckmans and others in the Ethereum community view it as a sign of strength. He pointed out on April 16th that he doesn’t expect Ethereum to reach the high staking levels seen on networks like Cardano and Solana. Why is this the case?

Why Isn’t Everyone Staking Their Ethereum?

The core reason boils down to Ethereum’s inherent value and utility. Let’s break down the key factors:

• Ethereum’s Value Proposition: Ethereum isn’t just a store of value; it’s the backbone of a vast ecosystem. From DeFi protocols to NFTs and countless decentralized applications (dApps), ETH is actively used. Unlike assets on some other chains, holding ETH often means participating in this vibrant ecosystem, not just passively earning staking rewards.
• Opportunity Cost: Staking, in essence, is like putting your crypto in a fixed deposit. You lock it up to earn a yield. However, with a valuable and versatile asset like ETH, the opportunity cost of locking it up for staking might be too high. Investors may prefer to use their ETH in DeFi, lend it out, or keep it liquid for other opportunities within the Ethereum ecosystem.
• Lower Issuance (Dilution): Ethereum has a relatively low issuance rate compared to some other blockchains. As Berckmans notes, some chains intentionally inflate their token supply to incentivize staking. If a network issues tokens at a high rate (high dilution), staking becomes almost necessary to maintain the value of your holdings. Ethereum’s more conservative issuance means there’s less pressure to stake simply to combat dilution.

To illustrate this point, consider the staking ratios of other prominent networks:

Data Source: Staking Rewards (Approximated for illustrative purposes)

As you can see, Ethereum’s staking percentage stands out as significantly lower compared to these other layer-1 blockchains.

Demand and Utility: The Real Drivers of Ethereum’s Value

Instead of relying heavily on staking incentives, Ethereum’s value is primarily driven by its robust demand and diverse use cases. Network fees serve as a strong indicator of this demand. Interestingly, even during market downturns, Ethereum has consistently generated higher fees than its competitors, according to reports from BeInCrypto. This highlights the ongoing utility and real-world demand for transacting and building on the Ethereum network.

Why Low Staking is Actually Bullish for Ethereum

So, how does low staking become a positive indicator? Here’s the logic:

• Strong Demand & Utility: Low staking suggests that holders are actively using their ETH within the ecosystem, indicating strong demand for Ethereum’s network and applications. This inherent utility is a more sustainable driver of value than artificially inflated staking rewards.
• Sound Monetary Policy: Ethereum’s low issuance rate, contributing to the lower need for staking, reflects a sounder monetary policy. It prioritizes scarcity and organic growth over aggressive inflation to incentivize staking.
• Confidence in Ecosystem Growth: The willingness to keep ETH liquid and deploy it within the ecosystem, rather than lock it up solely for staking, signals confidence in the future growth and opportunities within the Ethereum network.

Conclusion: Embrace Ethereum’s Unique Strength

In conclusion, while a low staking percentage might initially raise eyebrows, for Ethereum, it’s not necessarily a cause for concern. Instead, it reflects the unique nature of Ethereum as a highly valuable and actively used network. The lower staking ratio is arguably a byproduct of its strong demand, diverse utility, and sound monetary policy – all bullish indicators for the long-term health and growth of the Ethereum ecosystem. As Ryan Berckmans aptly put it, “Ethereum’s low stake levels are really quite bullish, and that our low stake levels have always mostly been caused by this bullishness and sound monetary policy rather than a lack of withdrawals.” So, the next time you see Ethereum’s staking percentage, remember to look beyond the numbers and understand the underlying dynamics driving its unique position in the crypto landscape.