Billions in Ethereum Waiting to Be Unstaked Could Add Sell Pressure to ETH: Analyst
The Ethereum blockchain's validator exit queue hit 855,158 ETH on Friday—the highest it's ever been, according to validatorqueue.com. The tokens were worth a combined $3.7 billion as of late Friday, according to data provider CoinGecko.
Staking is a process by which digital asset holders lock up their tokens to secure a blockchain network and earn rewards. Stakers may choose to unlock and reclaim their crypto amid uncertain market conditions, transferring them to comparatively risk-off assets or cashing out.
The Ethereum networks limits the amount of ETH that can be unstaked at a given time. The limit is designed to maintain network stability by preventing mass validator exits, which could disrupt the blockchain's consensus mechanism. Currently, the queue is expected to take 15 days to clear.
The mounting queue of soon-to-be-unstaked ETH could be driving the asset's recent retracement, Bitwise Senior Investment Strategist Juan Leon told Decrypt. The second-largest crypto asset by market cap has shed hundreds of dollars in recent days after coming close to setting a new all-time high mark.
The unstaked Ethereum queue could negatively affect ETH's price, particularly if staked ETH trades at a discount to ETH, he explained.
'Tokens like stETH can trade at a discount. That discount reduces their value as collateral, triggering risk cuts, hedges, or even liquidations that lead to spot ETH selling,' Leon said.
What's Driving Ethereum's Surge—And Can It Last?
He added that some trades may unwind as the unstaking queue grows, particularly if the cost to borrow ETH spikes.
When that occurs, 'leveraged 'stETH loop' trades via liquidity pools on DeFi protocols stop being profitable,' Leon said. 'Traders unwind by exiting positions and selling ETH to repay loans, creating synchronized sell pressure.'
Growing efforts to unstake ETH came shortly after the token on Thursday came within striking distance of its record price of $4,878 hit in November 2021, per data from CoinGecko. Since then, the altcoin has retraced its gains, weighed down by growing geopolitical uncertainty and a hotter-than-expected producer-price-index report from the U.S.
Despite concerns about Ethereum's validator exit queue, Leon cautioned that a rise in ETH waiting to be unstaked doesn't necessarily signal that the token's price will continue to edge down.
'Unstaking doesn't usually cause a sudden crash, but under stress it can act like a steady tap of new supply,' he said, 'pressuring prices lower if it overwhelms new demand for ETH.'
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