Ethereum Faces Looming Staking Bottleneck

Anyone who has followed Ethereum’s staking queues recently has likely been surprised at how long it takes to deploy assets on the network. The backlog is finally starting to abate, but we’ve identified four major forces that are going to clog things up again.

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Ethereum Faces Looming Staking Bottleneck

This fall, four major sources of Ethereum staking demand are set to converge on the network around the same time. Get ready for long lines.

Ether holders looking to stake their tokens may want to start getting in line, as a huge surge in demand could be coming in a few weeks.

As of Sept. 18, the network’s validator entry queue is 422,143 tokens, worth $1.94 billion at today’s prices. While this is down from 986,824 ETH in August, it remains a historically high number for the network since The Merge in September 2022, which saw it implement a proof-of-stake consensus mechanism.

But don’t be fooled by the declining entry numbers on the above chart, which have reduced the waiting time for entry from 16 to 8 days. They are about to surge. 

The reason? 

On Sept. 9, a security incident involving Kiln, a $15 billion staking provider that helps secure various proof-of-stake networks, caused the firm to pre-emptively unstake all of its ETH. For a bit of perspective, Kiln is the fifth-largest ETH staker, with over 1.6 million ETH under management. As demonstrated in the chart above, this caused the exit queue to jump from a little over 500,000 ETH to more than 2.5 million tokens. 

But what goes up must come down, and all of those tokens will re-enter the staking queue as soon as Kiln decides that it is safe. The closing of that loop may coincide with three other major sources of staking demand, which could dramatically lengthen the time that it takes to stake ETH.

Other Key Sources of Demand

1. Digital Asset Treasuries

If 2024 was the year of the ETF, then 2025 is undoubtedly the year of the digital asset treasury (DAT) company. Aside from bitcoin, the asset with the most value locked in DATs is ETH. According to the data accumulation site Strategic ETH Reserve, 4.99 million ETH, worth $22.97 billion, is currently owned by companies such as Bitmine Immersion, Ether Machine, and Sharplink Gaming (see chart below). They have grown so quickly that they are close to matching the holdings of spot ETH exchange-traded funds (ETFs), which have 6.75 million tokens worth a shade over $31 billion.

A key reason why advocates for ETH feel that their asset is a better fit for crypto treasury firms is that the companies can earn passive yield on their holdings. Right now, staking ETH yields 2.91% annually, according to the Composite Ether Staking Rate (CESR), a daily benchmark rate that represents the mean annualized staking yield of the Ethereum validator population, though that number can fluctuate based on the price of ETH and amount of the asset being staked at any given time. According to Chris Perkins from Coinfund, this “risk-free rate” is comparable to LIBOR for Ethereum. The rate can be lower if you use a liquid staking tool like Lido or Rocketpool because of extra fees that they charge.

Additionally, unlike Bitcoin, which is inflationary — despite having a limit of 21 million tokens, Ethereum is now programmed to be a deflationary asset when usage is high enough.

As these companies race to acquire more ETH — the leader is Tom Lee’s Bitmine Immersion with $9.9 billion of the asset — they quickly move to stake the assets in order to begin accumulating yield. Given that most of these funds were raised over the summer, this movement is the likely culprit behind the large entry queue demonstrated above. 

Kam Bambrik, head of research at Chorus One, an institutional staking provider, noted, "A significant portion of the new stake came from DATs such as Sharplink, the second-largest DAT with around $3.6B in ETH, which publicly announced that it is now staking nearly 100% of its holdings. We expect the entry queue to rise further, driven largely by one key catalyst: Bitmine. Onchain data suggests Bitmine has not yet begun staking, and as the largest ETH DAT, its entry into staking is likely to have an impact on the entry queue once it happens." [Editor’s Note: Leeor is currently employed at Chorus One as the head of the U.S. market.]

 As companies look to raise additional funds, it is fair to expect similar increases in the entry queue. 

Still, it is also not entirely clear how much of these funds raised by all of these companies are currently staked. In response to questions from Unchained, Sharplink said that nearly 100% of their ETH is staked and Ether Machine noted that over 90% of their assets are staked. It is unclear how much ETH is currently staked by Bitmine, and a company representative declined to give Unchained a specific answer when reached for comment, referring us to the company website.

Mara Schmeidt, CEO of the institutional staking provider Alluvial, also believes that a lot of DAT-owned ETH is still sitting on the sidelines. “There's a few DATs that have acquired ETH that haven't been deployed yet, familiar names that you would have heard of,” said Schmeidt. “We're expecting that there's probably a couple billion [dollars] sitting on the sideline.”

2. Staking ETFs

Domino number two will be ETFs that expect to get the green light from the U.S. Securities and Exchange Commission (SEC) to begin staking their assets this fall. Though the regulator delayed decisions on a number of applications from Sept. 10 until October, final deadlines are coming up soon, and Bloomberg Analyst James Seyffart expects them to get approval by mid-late next month. 

“The key issue that the ETFs have had to date is not related to the SEC, but rather a tax issue or grantor trust issue,” said Mara Schmeidt, who agreed with Seyffart. “I think that we will have a clear path to staking in the ETFs in October with a pretty high degree of confidence, and that's obviously the most material single event where you're going to start to see a material uptick in participation. The inflows could be massive, and so I think these queues are not going to go anywhere for the next couple of months.” 

3. Holiday Bullishness

Additionally, despite ETH’s massive price surge this year (up 36.6% YTD, but 140.59% since April 1), it is fair to expect another price surge during Q4, a historically bullish period for crypto.

In previous cycles, ETH had Q4 returns of 142.81% and 22.59% in 2017 and 2021, respectively. Should history repeat itself, a surge in the demand for ETH would likely lead to a concurrent increase in the entry queue.

4. Back to Kiln

In the grand scheme of things, Kiln and its 1.6 million ETH may seem relatively small. But all of these sources of funds will flow into the same entry queue around the same time. Unchained reached out to Kiln to get an update on when the firm might feel comfortable staking their assets again but did not receive a response prior to publication.

Additionally, it all leaves less slack and available capacity when other big stakers enter the queue. Case in point: in early September, a dormant ICO-era wallet staked 150,000 ETH ($646 million).

Beneficiaries: Projects and Tokens in the Spotlight

Assuming that people can get past what could be very long lines, increased queue activity creates tailwinds for Ethereum's liquid staking and restaking ecosystems, as users rotate to efficient, yield-optimizing options. 

Liquid staking leaders Lido (stETH) and Rocket Pool (rETH) benefit from users seeking additional yield strategies and liquidity. Lido controls ~24% of all staked ETH with $37 billion TVL, showing sustained demand. Rocket Pool's rETH has $2.8 billion TVL, emphasizing decentralization with a greater number of solo stakers than Lido. 

Restaking protocols may also see explosive growth, offering compounded returns via actively validated services (AVSs), chains that borrow security from ETH already staked. EigenLayer leads with $19 billion TVL. Ether.fi exceeds $11 billion TVL with innovative strategies, boosting ETHFI's potential. Renzo's ezETH holds $1.5 billion TVL. These protocols’ native tokens EIGEN, ETHFI, and REZ could see upside, as they offer higher yields of ~3.5-5.5% versus native staking’s ~2.8%.

Despite the recent outflows, liquid staking, liquid restaking, and staking pool participation, all increased in recent months, pointing to the rise of this onchain activity. 

THE NUMBER: 10.8%

– Juan Aranovich, Unchained’s managing editor

Coinbase just rolled out USDC lending directly inside the app, powered by Morpho and Steakhouse, fully onchain, and offering up to 10.8% yield (though that number will fluctuate).

It’s available now for users in the U.S. (minus NY), Bermuda, and more countries coming soon.

Here’s the kicker 👇

Coinbase holds $14B in USDC across its platform (Q2 earnings).

If even a fraction of that flows into Morpho, it could meaningfully shift DeFi TVL.

Morpho’s current TVL? ~$8.3B.

That means Coinbase users alone could easily double Morpho’s size.

We are yet to see if Coinbase can sustain that high yield and if users will be even interested in taking the extra risk of DeFi.

But anyway, it’s worth watching closely, because if it plays out nicely, MORPHO can get a significant catalyst.

But be careful not to get caught by FOMO. When the announcement was made yesterday, MORPHO immediately surged by almost 20%. It has since given up most of those gains, amid the broader market correction. 

Related Links:

• Ethereum Is Lagging. Here’s How It Could Finally Shake Off Rival Solana

• BitMine Crashes 39% After It Files to Raise $2 Billion for More ETH

• These 4 Crypto Treasury Companies Are Primed for a Price Crash