Ethereum staking bottleneck breaks as long-running exit queue clears

After four long months, Ethereum’s validator exit queue is no more.

The key safety mechanism became clogged in September after Kiln, a major Ethereum staker, removed its entire validator fleet from the network after hackers exploited a vulnerability in the platform’s staking infrastructure.

The backlog delayed staking withdrawals by several weeks at its peak, causing numerous headaches for Ethereum staking protocols, platforms that offer to stake Ether tokens for users in exchange for a small fee.

Now, those protocols are celebrating the return to normalcy.

Liquid staking tokens, receipt-like claims on staked Ether, are now less likely to trade at a discount, Kirill Kutakov, co-founder of liquid staking protocol Stakewise, told DL News.

Crypto markets price in the so-called duration risk caused by a clogged Ethereum exit queue. Spikes in queue length can amplify discounts to liquid staking tokens because those who buy them must wait longer until they can redeem them for the underlying Ether they represent.

A free flowing exit queue is also a good thing for the broader DeFi ecosystem. It’s now simpler and cheaper for those engaged in leveraged Ethereum staking strategies to unwind their positions, leading to more efficient trading, Kutakov said.

Why is there a queue?

Ethereum’s exit queue is a necessary part of the blockchain’s security.

The mechanism limits the speed at which Ether can leave the network based on the total amount staked. Currently, it’s set to around 57,600 tokens every day.

This helps prevent rapid changes to Ethereum’s validator set — those running the software that stakes Ether and processes transactions on the network. Each validator must lock up at least 32 Ether tokens, up to a maximum of 2,048.

A sudden drop in validators could make the network more vulnerable to attack. The delay also stops validators exiting immediately should they misbehave, disincentivising abuse.

The cleared exit queue also comes as a relief for Rocket Pool, the third largest Ethereum liquid staking protocol which holds $1.8 billion worth of staked Ether.

Rocket Pool’s node operators will have a much easier time redeploying their validators following its upcoming Saturn upgrade planned for February 9, Darren Langley, a general manager at the protocol, told DL News.

Staking inflows surge

As the exit queue rolls off, the queue to spin up new Ethereum validators is also increasing at a rapid pace.

Since December 24, the amount of Ether tokens entering the queue has jumped almost 300% to more than 1.7 million. New validators entering the queue must now wait over 30 days before they are able to join the network, per data from Beaconcha.in.

BitMine, the world’s biggest Ethereum treasury firm, is responsible for a large portion of the new Ether being staked. The firm began staking on December 26 and has since locked up 936,512 Ether worth approximately $2.9 billion, per onchain records.

BitMine chair Tom Lee has repeatedly expressed his intention to purchase and stake 5% of the entire Ether token supply.

The firm currently holds just over 4 million Ether, around 67% of the way towards its goal.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at [e-mail].