Original author: Leeor Shimron

Original translation: Saoirse, Foresight News

ETH holders looking to stake their tokens may want to start lining up, as there could be a major surge in staking demand in the coming weeks.

As of September 18th, the Ethereum network had 422,143 ETH in its validator queue, worth $1.94 billion at current prices. While this is down from 986,824 ETH in August, it remains the highest level on the network since the September 2022 "The Merge" event, which officially launched Ethereum's Proof-of-Stake consensus mechanism.

(Validator Queue Data Chart)

But don’t be fooled by the appearance of a “decreasing number of people in the staking queue” in the above chart - while this trend will shorten the staking wait time from 16 days to 8 days, the queue will soon surge again.

What is the reason?

On September 9th, Kiln, a staking service provider with $15 billion under management (it provides security support for multiple proof-of-stake networks), experienced a security breach. As a result, Kiln preemptively unstaked all of its ETH holdings. For reference, Kiln is currently the fifth-largest ETH staker, managing over 1.6 million ETH. As shown in the chart above, this action directly caused the Ethereum "exit queue" (the amount of ETH awaiting unstacking) to surge from just over 500,000 to over 2.5 million.

(Dune Analytics)

But after the "exit," there will be a "return." Once Kiln determines the network is secure, all previously unstaked ETH will re-enter the staking queue. This "return" may coincide with a surge in demand from the other three major sources of staking, potentially significantly extending the waiting time for staking Ethereum.

Other key sources of demand

Digital Asset Treasury (DAT)

If 2024 was the "Year of the ETF," then 2025 will undoubtedly be the "Year of the Digital Asset Treasury (DAT)." Besides Bitcoin, ETH holds the highest locked-in value in digital asset treasuries. According to data aggregation platform Strategic ETH Reserves, companies like Bitmine Immersion, Ether Machine, and Sharplink Gaming currently hold a combined 499,000 ETH, valued at $22.97 billion (see chart below). These companies' ETH holdings have grown rapidly, approaching the holdings of ETH spot ETFs, which currently hold 675,000 ETH, valued at just over $31 billion.

(Strategic ETH Reserve)

ETH supporters argue that the asset is particularly well-suited for crypto reserve companies because it offers passive returns on ETH. According to the Compound Ethereum Staking Rate (CESR), a daily benchmark rate representing the average annualized staking yield across Ethereum validators, the current annualized yield on ETH staking is 2.91%—though this rate adjusts with ETH price fluctuations and the total amount staked at a given point in time. Chris Perkins of Coinfund compares this yield to the London Interbank Offered Rate (LIBOR) for Ethereum, representing the ecosystem's "risk-free rate." However, it's important to note that using liquidity staking tools like Lido or Rocket Pool will result in a lower yield than 2.91% due to additional platform fees.

(Rho Protocol)

Furthermore, unlike Bitcoin (which is still an inflationary asset despite its capped total supply of 21 million), Ethereum’s current mechanism is set up to become a deflationary asset when network usage is high enough.

As digital asset treasuries rushed to accumulate ETH (led by Tom Lee's Bitmine Immersion, which holds $9.9 billion worth of ETH), they quickly staked their increased ETH to begin accumulating returns. Given that most of these firms raised their capital this summer, this "accumulation followed by staking" is likely a key factor in the recent expansion of the Ethereum staking queue.

Kam Benbrik, head of research at Chorus One, an institutional staking service provider, noted, "A significant portion of this new staking volume is coming from digital asset treasuries like Sharplink. Sharplink is the second-largest digital asset treasury, holding approximately $3.6 billion in ETH and publicly declaring 'nearly 100% of its holdings staked.' We expect the staking queue to expand further, with Bitmine being a key driver. On-chain data indicates that Bitmine has yet to begin staking its ETH. As the largest ETH digital asset treasury, once it begins staking, it will have a significant impact on the size of the Ethereum staking queue." (Editor's note: The author, Leeor, currently works at Chorus One as Head of US Markets.)

(Strategic ETH Reserve)

As these digital asset treasury companies plan to raise further funds, it is highly likely that similar growth in the size of the Ethereum staking queue will occur in the future.

However, it's not entirely clear what percentage of the funds raised by these companies has actually been used for staking. In response to questions from Unchained, Sharplink stated that "nearly 100% of all ETH is staked," while Ether Machine claimed "over 90% of assets are staked." Bitmine's current stake size remains unclear—a representative declined to provide specific figures in an interview with Unchained, referring only to information on the company's website.

Mara Schmeidt, CEO of Alluvial, an institutional staking service provider, agrees that a significant amount of ETH is still "idle and unstaked" in digital asset treasuries. She stated, "Several prominent digital asset treasury firms—all well-known names in the industry—have acquired ETH but haven't yet staked it. We estimate that the amount of idle ETH currently lies in the billions."

Pledged ETFs

The second largest source of demand is for "staking Ethereum ETFs"—this type of ETF is expected to receive approval from the US SEC this fall, officially launching ETH staking services. Although the SEC has postponed the approval of several staking ETF applications from September 10th to October, the final approval deadline is approaching. Bloomberg analyst James Seyffart predicts that such ETFs are likely to be approved in mid-to-late October.

Mara Schmeidt echoed Seyffart’s sentiment, stating, “The core challenges facing staking ETFs to date haven’t been SEC approval, but rather tax or grantor trust issues. I have a high degree of confidence that the path to staking ETFs will be completely clear by October — this will clearly be the most impactful event, as we’ll see a significant increase in ETH staking participation. The inflows are likely to be substantial, so we won’t see a discontinuation of the Ethereum staking queues in the coming months.”

Holiday optimism

In addition, although ETH has achieved a significant price increase this year (36.6% year-to-date and 140.59% since April 1), considering that the fourth quarter is a "historically bullish cycle" in the cryptocurrency industry, it is expected that ETH may still see a new round of price increases in the fourth quarter of this year.

(TradingView)

In past cycles, ETH has performed particularly well in the fourth quarter: a return of 142.81% in the fourth quarter of 2017 and 22.59% in the fourth quarter of 2021. If history repeats itself, the surge in demand for ETH will simultaneously drive the expansion of the staking queue.

Coinglass

Revisiting Kiln: The Return of Staking Demand

While Kiln and the 1.6 million ETH it manages may not seem particularly large in terms of overall scale, the key point is that these four sources of demand are expected to flow into the same staking queue over roughly the same timeframe. Unchained reached out to Kiln to inquire about its plans to restart ETH staking, but did not receive a response before publication.

Furthermore, this surge in demand will significantly reduce the "redundant space" in the staking queue—once other large stakers enter the market, the queue will be further extended. A typical example is: in early September, a "dormant wallet from the ICO era" suddenly staked 150,000 ETH (worth $646 million).

Beneficiaries: Highly anticipated projects and tokens

Assuming users can survive the long staking queue, the active staking queue will bring development dividends to Ethereum's "liquid staking ecosystem" and "restaking ecosystem" - because users will be more inclined to choose efficient staking solutions that can optimize returns.

In the liquidity staking sector, leading projects Lido (stETH) and Rocket Pool (rETH) will directly benefit from user demand for additional yield strategies and liquidity. Lido controls approximately 24% of the ETH staking market share, with a total value locked (TVL) of $37 billion, demonstrating sustained and stable market demand. Rocket Pool's rETH TVL is $2.8 billion, and its core advantage lies in its greater degree of decentralization—compared to Lido, it has a larger number of independent stakers (rather than institutional ones).

Restaking protocols are also likely to experience explosive growth. These protocols offer compound returns to users through "active verification services (AVSs)" (i.e., "borrowing" security from staked ETH), with yields (approximately 3.5%-5.5%) significantly higher than native staking (approximately 2.8%). Currently, leading projects in the restaking space include:

• EigenLayer: Total locked value of $19 billion, leading the industry;
• Ether.fi: With a total locked value exceeding $11 billion, it leverages innovative strategies to enhance the growth potential of its native token, ETHFI.
• Renzo (corresponding token ezETH): total locked value is US$1.5 billion.

As the demand for re-staking grows, the native tokens of these protocols (EIGEN, ETHFI, REZ) may see an increase in value.

(Dune)

Despite recent short-term outflows, Ethereum’s liquidity staking, liquidity re-staking, and staking pool participation have all trended upward in recent months, suggesting continued growth in this type of on-chain activity.