When 8 Million ETH Begins to "Move": In the Post-Pectra Era, Is Staking Facing a Structural Transformation?

A major piece of news that the market has recently overlooked is that Lido is in the process of "relocating" over 8 million ETH (approximately $160 billion).

Of course, this doesn't mean moving funds from Lido to another new protocol, but rather the gradual migration of hundreds of thousands of legacy validators that back stETH to a new validator architecture introduced after the Pectra upgrade.

According to Lido's plan, over 265,000 validators using the old 0x01 withdrawal credentials will be progressively consolidated into fewer, higher-balance 0x02 validators. Upon completion, the total number of validators on the Ethereum network is expected to drop from roughly 880,000 to about 628,000, a reduction of nearly one-third. The number of attestation messages that need to be propagated each Epoch could also decrease by approximately 29%.

This won't directly lower the gas fees paid by regular users, nor will it suddenly speed up transaction confirmation times. In fact, to complete the migration, Lido estimates the temporary loss of rewards amounts to roughly 0.28% of the protocol's annual staking rewards.

So, if the increase in yield is limited and the migration itself comes with costs, why is Lido still pushing this massive, tens-of-billions-dollar "relocation"?

The answer lies in a key change brought about by the Pectra upgrade in May 2025—the compounding validator.

1. What Exactly is Lido "Moving" with its 8 Million ETH?

On May 7, 2025, the Pectra upgrade officially went live on the Ethereum mainnet.

Among its changes, EIP-7251 increases the maximum effective balance of a single validator from 32 ETH to 2048 ETH and introduces withdrawal credentials starting with "0x02". Validators using these new credentials can keep their consensus layer rewards within the beacon chain balance, gradually increasing their effective balance and generating new yield. This is why they are also called "compounding validators."

On the surface, this just codifies "automatic yield compounding" into the protocol, but the deeper change is that it breaks Ethereum's long-standing fixed 32 ETH validator structure.

As is well known, the upper limit for a validator's effective balance on Ethereum has always been 32 ETH. Even if the balance grows to 33 ETH or higher, the effective balance used to calculate consensus rewards is capped at 32 ETH. The excess does not increase the validator's staking weight and is periodically swept to an execution layer withdrawal address.

For individual stakers running just one or a few validators, to get their rewards back into native staking, they must accumulate enough from dispersed rewards across different validators to hit another 32 ETH. The barrier to compounding is high, and small leftover balances stay outside the staking system after being sent to the withdrawal address.

Simultaneously, for Lido, large exchanges, and professional staking service providers, while they can aggregate the small rewards generated by many users to more quickly form new 32 ETH batches, they face a different cost: every time 32 ETH is accumulated, it typically requires creating and maintaining a new validator.

It's important to note that as Ethereum's staking scale grows continuously, the number of validators swells, bringing along increased overhead for indexing, keys, signatures, and attestation messages. Consequently, operational and maintenance costs rise.

EIP-7251 introduced by Pectra aims to change this structure.

In the new 0x02 model, the minimum threshold to launch a validator remains 32 ETH, but the maximum effective balance for a single validator is raised to 2048 ETH. This means rewards no longer have to be automatically withdrawn; they can remain in the validator, increasing the effective balance and generating further yield.

Furthermore, multiple existing validators can be merged. For instance, 2048 ETH spread across 64 separate validators can be consolidated into a single high-balance validator. The total staking weight remains unchanged, but the number of validators, keys, and network messages needed for management is drastically reduced (see our related article: A Year Later, 'Lean Ethereum' Sets Off Again: What Answer Does Ethereum Aim to Deliver?).

Ultimately, the funds haven't left Ethereum, and the economic security provided hasn't decreased, but the operational burden has been significantly reduced.

This consolidation is precisely what Lido is pushing forward.

So, strictly speaking, the "compounding" in compounding validators explains only half of their value. The other half is that validators can finally break free from the standardized 32 ETH unit structure and be recombined into a leaner infrastructure better suited for large-scale operation.

2. What Kinds of Yield Improvements Can It Bring?

Interestingly, when looking solely at yield, the improvement from compounding is not evenly distributed.

Theoretically, both individual stakers and large institutions can use 0x02 to reduce idle balances, allowing rewards to participate more directly in subsequent staking. However, because different participants have different baseline abilities to manage funds, the marginal benefit from the upgrade varies.

A paper published in June 2026, titled "When Staking Rewards Compound: Measuring the Impact of Ethereum's Pectra Upgrade," compared the earnings performance of 0x01 and 0x02 validators.

Simulation results showed that for balance ranges between 32 ETH and 2048 ETH, the average consensus layer APR for 0x01 validators was about 2.17%, while for 0x02 validators it was about 2.26%. This represents a relative improvement of roughly 4.7% for the latter. However, when the staking scale reached 8192 ETH to 10240 ETH, the relative gap narrowed to about 0.3%.

It's crucial to note here that the "about 4.7%" mentioned in the paper doesn't mean a direct increase of 4.7 percentage points in APR. It refers to a relative improvement of about 4.7% on top of the existing consensus layer APR of roughly 2-3%.

The reason smaller stakers see a more significant improvement isn't because they have access to some exclusive yield, but because they historically found it harder to compound their rewards.

For example, a user with a single 32 ETH validator. Once their rewards are automatically swept to the withdrawal address, they need to accumulate for a long time or combine funds to reach another 32 ETH to start the next validator. Balances under 32 ETH remain scattered across different addresses, making consolidation less appealing.

In contrast, a 0x02 validator allows these funds to continue increasing the effective balance within the same validator, thus reducing idle capital from amounts "less than 32 ETH." In essence, smaller stakers previously lacked not just the willingness to compound, but also the capability to effectively redeploy their scattered ETH into native staking.

Large staking service providers also benefit from native compounding, but they already possess stronger capabilities for capital aggregation. They can quickly accumulate new 32 ETH batches and spin up new validators. From the perspective of their entire pool, they could already achieve a capital allocation effect close to compounding.

Therefore, the larger the staking scale, the lower the proportion of idle, scattered balances relative to total capital, and consequently, the smaller the marginal improvement brought by 0x02.

However, this doesn't mean 0x02 is unimportant for large institutions.

Quite the contrary, the core problem large institutions face is shifting from "how to get rewards to generate further yield" to "how to manage more ETH with fewer validators."

For them, the value of 0x02 is more evident in two aspects: first, rewards can remain in the validator to compound continuously, reducing the frequency of collection, re-depositing, and validator creation operations; second, a large number of existing 32 ETH validators can be merged, significantly lowering the management costs associated with nodes, keys, and consensus layer messages.

Of course, this change also involves new trade-offs.

Traditional 0x01 validators automatically sweep rewards exceeding 32 ETH to a withdrawal address without requiring an active on-chain operation. Conversely, 0x02 default to keeping rewards in the validator. Large service providers needing to fulfill user redemptions or manage liquidity must actively initiate partial withdrawals and redesign their accounting, reward distribution, and capital buffer mechanisms.

Thus, for small-scale stakers, the most direct value of 0x02 is lowering the barrier to compounding and reducing idle capital. For large institutions, while the yield improvement is smaller, the validator consolidation and improvements in infrastructure efficiency are far more critical.

Both benefit from the same mechanism, but their sources of gain and priorities differ.

3. What Changes and Remains the Same in the Ethereum Staking Ecosystem

So, if you only look at APR, Lido's migration might not seem like a particularly lucrative venture.

After all, the yield improvement for large service providers from compounding might be less than 1%. The migration process also involves temporary reward losses. Existing accounting, withdrawal, and liquidity management systems need adjustments too.

Yet, Lido still decided to push this, its largest core architecture upgrade since V2 in 2023. This is simply because, when a protocol manages over 8 million ETH, the sheer number of validators itself becomes a significant cost.

Especially after the Pectra upgrade, one 2048 ETH validator can carry the staking weight equivalent to 64 traditional validators. This means being able to manage more capital more efficiently with fewer validators.

In fact, Lido's upgrade isn't just about merging validators.

With the migration to Curated Module v2 (CMv2), its professional node operators are, for the first time, required to lock ETH as a security deposit. If operational downtime, slashing, reward mismatches, or other attributable issues occur, this deposit can be used to cover the losses.

Previously, Lido's curated node operators primarily relied on historical performance and reputation to gain trust. Now, while reputation remains, a layer of real capital constraint has been added. All 34 current curated node operators are expected to migrate to CMv2, and none have opted out due to the deposit requirement.

This change might be more noteworthy than compounding itself. It signifies that the competitive standards for staking post-Pectra are undergoing a massive structural shift. Future staking services will likely differentiate themselves more by how they improve effective capital utilization, manage withdrawals and liquidity, distribute validator risks, and balance asset control, operational complexity, and yield.

For user interfaces like wallets, the value is no longer just about displaying a yield number. It's more about helping users understand the capital paths and risk structures behind different staking methods. Take imToken Stake as an example:

• Currently, users can directly access staking functions from the ETH asset page and choose the appropriate service based on their capital size and needs. For users looking to participate with smaller amounts, they can do so via the integrated staking service within the wallet.
• For users holding 32 ETH or more who wish to retain asset control, they can also opt for a non-custodial validator solution, participating in native Ethereum staking while avoiding the need to maintain their own nodes.

As compounding validators become more common, the information these entry points need to present will also grow. This includes whether yields are auto-compounded, when rewards can be withdrawn, which withdrawal credentials the validator uses, who controls the funds, and the technical and liquidity risks associated with different solutions.

This also means that a wallet is no longer just connecting to a single staking yield page, but to a set of continuously differentiating validator services.

Final Thoughts

Overall, from The Merge to the Shanghai upgrade, and now to Pectra, Ethereum is progressively completing the entire lifecycle of staking.

The Merge made validators the core of network security. The Shanghai upgrade solved how staked funds could be withdrawn. The Pectra upgrade begins to further optimize how funds are deposited, accumulated, and reorganized.

Of course, compounding validators won't provide equal yield improvements to all participants:

• For small-scale stakers, it can reduce idle balances, allowing long-held ETH to participate more fully in consensus.
• For large institutions, its more important value may not be increasing APR, but reducing the number of validators and lowering operational burdens.

Therefore, the migration to 0x02 validators is destined to be gradual. Different participants will choose whether to keep their existing validators or gradually shift to the compounding model, based on their capital size, liquidity needs, and operational structure.

But the way Ethereum organizes staking capital is already undergoing a significant structural shift. Especially now that validators are no longer fixed at 32 ETH, the staking ecosystem is moving from standardized yield products towards more nuanced competition in capital management and infrastructure.

This shift in the Ethereum staking paradigm is well worth tracking over the long term.