Loss of interest in Proof-of-Stake

Since Ethereum abandoned Proof-of-Work (PoW) and switched to Proof-of-Stake (PoS) in September last year, some things have changed. 

Fees have remained high, although they have come down, but most importantly, interest in staking has dropped. 

Proof-of-Stake on Ethereum

Ethereum uses a special form of staking that requires a minimum of 32 ETH ($51,000) to be fixed on a node. 

This makes validator nodes accessible only to large ETH holders, or at least out of reach for small holders, paving the way for Staking-as-a-Service. 

Staking-as-a-Service is a service that large validator nodes, e.g. exchanges, offer to small holders who can leave their ETH with them to be used for staking on their nodes in exchange for a percentage of the revenue. 

Thus, when talking about ETH staking, one must distinguish between the activity of validating blocks via PoS on validator nodes, and simply handing over one’s ETH to validator nodes.

Resetting the queue

To become a validator node, you must apply and be placed in a queue. 

At the peak of such applications in June, there were as many as 96,500 new validators in the queue, waiting more than 45 days to be accepted and start staking validating blocks. Yesterday, this queue even went to zero for a brief moment, and is now down to 996. 

So the interest in staking to validate Ethereum blocks has been growing strongly, peaking in June and then practically dropping to zero. 

The number of validator nodes was less than 580,000 in May, rising to over 600,000 in June. This growth continued until mid-October, when it reached 860,000, but has largely stopped since then. 

It should be noted, however, that this is not the first time this has happened, as something similar happened in mid-June, only then it lasted a few days, whereas now it has lasted almost a week. 

In mid-June it was probably the fall in the ETH price that prevented new validator nodes from opening, but now?

The price of ETH

At the beginning of the year, ETH was worth around $1,200. 

The boom at the beginning of the year continued until April, when it reached $2,100, but then it stopped. 

By the end of April it had fallen to $1,800, and by mid-June it was below $1,650. 

Within a week, however, it had climbed back above $1,800, and by mid-July it was back above $2,000. 

Since then it has done almost nothing but fall, with a return below $1,800 in mid-August and then a collapse that took it even below $1,600. 

Leaving aside the price at the beginning of January, it hovered around $1,600 until March, then around $1,800 until August, and then around $1,600 again. 

In particular, it rose above $1,700 in early October, only to fall back to $1,650 a few days later. 

The most surprising thing, however, is what happened after 9 October.

The October anomaly

For the first eight days of October, everything seemed normal. 

But on the 9th an anomaly occurred. 

While Bitcoin lost 4.5% in two days, ETH lost 7% in three days. 

It is true that Ethereum recovered somewhat by the 16th, but the anomaly continued in the following days. 

Bitcoin was up +9% over the last four days, while ETH remained at +3%. 

These differences may seem small, but they are in fact much larger than those that occurred earlier in 2023. 

In fact, the ratio of BTC’s market capitalisation to that of ETH has risen from 2.8 times on 15 October to 2.99 times today, a level never before seen in 2023. 

2023 had started at 2.18 times, rising to over 2.5 times in March. In June, it was 2.66 times, but the last few days really do seem like a small spike compared to the last few months.

Discontent with Ethereum?

All indications are that bitcoin is attracting almost all the interest at the moment, leaving altcoins with the crumbs. 

On the other hand, bitcoin tends to strengthen against altcoins during the so-called crypto winters, all the more so before a halving (the next one is scheduled for April). 

In addition, there is a lot of anticipation around the launch of spot bitcoin ETFs, which could benefit BTC in the coming months. 

Typically, such a trend breaks and then reverses after the start of a bull run as the BTC boom eventually gives way to other cryptocurrencies. 

If we take bitcoin’s dominance, it is at its highest since April 2021, the last time the above trend reversed. 

Suffice it to say that at the time of the all-time highs, in November 2021, it had fallen to 40% and then back down to 39%. Instead, a slow but almost steady rise to the current 52.5% began in January.

Proof-of-Stake: the problems of staking on Ethereum

Therefore, it does not seem that staking on Ethereum has any problems. 

The enthusiasm that started last year with the move to PoS has probably just fizzled out. 

Moreover, the current lack of interest seems to be more of a ‘merit’ of bitcoin than a ‘demerit’ of Ethereum, so it is quite possible that the trend will change sooner or later. 

Meanwhile, there have been no reports of technical problems with block validation on Ethereum’s blockchain, so this is just a temporary problem of discontent caused by bitcoin’s current strength.