Ethereum Validator Exit Queue Tops $2B as Stakers Rush to Quit After 160% Rally

Ethereum’s validator exit queue swelled on Tuesday to its longest wait time on record, a possible signal that stakers are looking to pull funds after a major price rally in ether (ETH).

There was nearly 625,000 ETH as of Wednesday 9:00 UTC, worth nearly 2.3 billion at current prices, in line to exit the network, data by validatorqueue.com shows.

That's even larger amount in the exit queue than the January 2024 spike, extending withdrawal delays to over 10 days, per the data source.

The congestion is due to the dynamics of Ethereum’s proof-of-stake model, which limits how quickly validators can join or leave the network. Validators are entities that stake tokens to help secure the blockchain in return for a reward.

Profit-taking after ETH rally

The exodus is likely due to profit-taking by those who staked ETH when the price was much lower and are now cashing out after ETH rallied 160% from the early April trough.

"When prices go up, people unstake and sell to lock in profits," said Andy Cronk, co-founder of staking service provider Figment. "We've seen this pattern for retail and institutional levels through many cycles." Unstaking spikes could also happen when large institutions move custodians or change their wallet tech, he said.

Notably, there was a surge of validators entering the network during March and early April, a period when ETH traded between $1,500 and $2,000.

David Shuttleworth, partner at Anagram, said that behind this dynamic could be "a mix of older stakers capturing profit as well as stakers shifting to a treasury strategy."

Ether-focused treasury vehicles such as SharpLink Gaming (SBET) and Bitmine (BMNR), which have recently captivated Wall Street, have been gobbling up ETH over the past few weeks. Some of those firms also accepted in-kind contributions in their fundraising, which might have prompted institutional token holders to unstake and contribute, noted Matthew Sheffield, head of spot trading at prime broker FalconX.

"Over the past few weeks, we’ve seen multiple ETH-focused vehicles active in the market, with more likely to raise capital in the coming weeks," Sheffield told CoinDesk. "The increase in the queue to unstake could, in part, reflect investors looking to contribute in-kind to those deals."

Also likely to have contributed to the unstaking surge was Tron founder Justin Sun. Blockchain data by Arkham Intelligence shows that on Friday an address labeled as Sun's requested to withdraw 60,000 ETH from liquid staking platform Lido.

One observer pointed out that Sun also withdrew tokens from lending platform Aave. That led to a "domino effect," with other traders unwinding their positions as their looping strategies became unprofitable, said Tom Wan, head of data at Entropy Advisors. Looping is a decentralized finance (DeFi) trading technique to enhance yield by recursive borrowing.

As of Wednesday, there was 237,000 ETH waiting to be unstaked on Lido, a Dune dashboard shows.

ETH staking demand also soars

Despite the wave of tokens being unstaked, a heavy pressure to sell may not materialize because there's a consistent demand to stake tokens and activate new validators.

There's over 343,000 ETH, worth nearly $1.3 billion, waiting to enter the network, stretching the entry queue beyond six days, its longest since April 2024.

Some of this fresh demand may have come from the ETH treasury firms. For example, Sharplink Gaming has accumulated more than $1.3 billion in ETH since its pivot in late May, staking tokens as part of its strategy to earn rewards.

Also, the U.S. Securities and Exchange Commission (SEC) clarified on May 29 that staking does not violate the country's securities laws, a ruling that has bolstered institutional appetite.

Underscoring the trend, the number of active validators has grown 54,000 since late May to reach a record high of nearly 1.1 million, according to validatorqueue.com.

"Since the SEC provided guidance on staking in May, Figment has seen a more than 100% increase in Ethereum staking delegations from institutions and a more than 360%+ increase in Ethereum queue times, which is inline with the price increases we've seen in ETH," Cronk told CoinDesk.

Read more: Institutions Are Driving Ethereum's 'Comeback'

UPDATE (July 22, 22:10 UTC): Added comment from Matthew Sheffield, head of spot trading at FalconX.

UPDATE (July 23, 9:57 UTC): Updated validator queue figures. Added Arkham Intelligence data of Tron founder Justin Sun's ETH unstaking requests, analyst comment on the position unwinding and Lido unstaking queue.

UPDATE (July 23, 10:04 UTC): Updated figures in headline, subhead.