Ethereum Unstaking Queue Hits Record High Amid Growing Withdrawals

The queue for exiting Ethereum validators has surged to an unprecedented level, with over $3.8 billion worth of Ether waiting to be unstaked. This backlog has pushed average wait times beyond 15 days, marking a significant departure from the usual swift processing observed since Ethereum transitioned to proof-of-stake in 2022. Prior to mid-June, delays exceeding 24 hours were uncommon and brief.

Understanding Staking and Unstaking on Ethereum

Staking involves locking up ETH to support the network’s security in exchange for rewards, while unstaking refers to the withdrawal of those staked funds. The current swell in unstaking activity is largely driven by liquid staking platforms, which allow users to stake ETH while maintaining liquidity through derivative tokens.

Liquid Staking Platforms Lead the Exodus

In the past month alone, major liquid staking providers such as Lido, Ether.Fi, and Coinbase have collectively seen withdrawals totaling approximately 573,000 Ether, valued around $2.5 billion. These withdrawals constitute the majority of the recent validator exits, highlighting a concentrated movement away from staked positions.

DeFi Strategies and Rising Borrow Rates Trigger Mass Unstaking

DeFi analyst Ignas points to the unwinding of leveraged staking loops as a key factor behind the surge. This strategy, once popular, involved users staking Ether to receive tokens like stETH, then borrowing ETH on platforms like Aave using those tokens as collateral, repeating the cycle to amplify yields.

However, a sharp increase in Aave’s borrowing rates—surpassing 10% in late July following a massive $1.7 billion Ether withdrawal, largely attributed to Justin Sun—disrupted this model. As borrowing costs soared, participants rushed to unwind their leveraged positions, triggering a cascade of unstaking from liquid staking providers backing these DeFi strategies.

“Even if borrow rates stabilize, loopers are concerned that stETH or other liquid staking tokens could lose their peg, risking forced liquidations. It’s safer to unwind positions now,” Ignas explained.

Institutional Interest and Market Dynamics Influence Withdrawals

Another possible driver behind the wave of unstaking is anticipation of upcoming Ethereum staking ETFs. Recent guidance from the U.S. Securities and Exchange Commission clarified that liquid staking tokens are not securities, potentially paving the way for increased institutional participation.

Additionally, some early stakers may be capitalizing on Ethereum’s recent price rally, which has seen the cryptocurrency climb to a four-year high above $4,500—an increase of 180% in just four months—by taking profits or reallocating assets.

Conclusion

The Ethereum validator exit queue’s record backlog reflects a complex interplay of DeFi strategy adjustments, market conditions, and regulatory developments. As the ecosystem evolves, these dynamics underscore the challenges and opportunities within Ethereum’s proof-of-stake framework.