Validators are leaving Ethereum

Contrary to developers' expectations, the number of validators in November didn't reach 1 million. Instead, it started to decline. From May to September, the number of departing validators averaged 380 validators per day, but that number was compensated for by an influx of new ones. Since October, however, 1,018 validators per day have been leaving.

Image source: glassnode.com

Currently, the network has 880,000 active validators, and the waiting time in the connection queue has decreased from 21 days in September to less than one day.

Image source: validatorqueue.com

In November, a decrease in staking pool volume was seen for the first time since the Shanghai hardfork allowed withdrawals from staking.

Image source: glassnode.com

American crypto exchanges have been among the top platforms in terms of the outflow of funds in the last two months.

Image source: glassnode.com

Kraken previously reached a settlement with the SEC, agreeing to pay a $30 million fine and close its staking services to retail investors. The current outflow is either due to qualified investors fleeing (the settlement didn't apply to them) or Kraken's failure to meet its obligations in full, which is the reason for another complaint that the regulator filed in November.

"$30m buys you about 10 months before the SEC comes around to extort you again," Kraken CEO Jesse Powell said in response to the new lawsuit.

Coinbase is second in terms of outflow after it refused to agree to a similar demand by the SEC to close access to staking. This site's massive outflow of investors from Ethereum is probably caused by the low yield of validators at 3.8% APY, which is significantly inferior to low-risk investments in US Treasury bonds. The annual yield on Treasury bonds is currently 5.2%.

The second reason is Ethereum's sluggish growth compared to both Bitcoin and a host of altcoins. Ethereum is 26% behind the leading cryptocurrency, and the ability to make passive income does little to compensate for this gap. Investors' last hopes this year were associated with the launch of an ETF for Ethereum futures in the United States in October, but those hopes didn't pan out.

Image source: StormGain.com

Investors' general disappointment is also confirmed by the fact that Lido Finance is now in third place for the amount of outflow. It now accounts for 69% of the queue of outgoing validators.

Image source: nansen.ai

The decline in overall investment attractiveness is also linked to the SEC transferring Ethereum to the category of securities immediately after the network transitioned to PoS, the growth of centralisation, censorship in the network and the dominance of Lido Finance in the staking pool.

StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)