Ethereum’s Staking Queue Could Soon Explode Again. What It Means for ETH

Transcript

Hi everyone. This is a special interview of Bits and Bips. I'm talking with Steve Erlick, our executive editor, about a story he wrote on some upcoming events with the Ethereum staking queue. So, Steve, what did you find out yesterday from Kil? >> Yeah, hi Laura. Thanks for having me. So, ever since uh Kil, which is one of the largest staking providers in the world, announced that they were going to preemptively pull all of their ETH uh that was staked about 1.6 6 billion I'm sorry 1.6 million units of ETH um worth almost $7 billion at today's prices um from the network uh in response to a security vulnerability that impacted their staked Salana and um and due to

fears that something similar could impact their Ethereum uh their the Ethereum that they staked. A big question was when are they going to try to put that money back to work? When are they going to try to put those assets back into the network? uh obviously as a staking provider um it's important for your business to be running it uh your one of your most important business lines and for their clients uh every day that their assets are not being staked uh means that they're missing out on passive income that comes from from staking which is about 3% uh give or take depending on the day. Uh this was even more uh and the company itself Ken they had actually gone pretty silent

since this announcement. So, uh, as part of reporting that we did for a terrific story that one of our contributing writers, uh, Leor Shimron, wrote last week talking about a few different flows that are going to merge to create a huge bottleneck in the ETH staking queue. We reached out to the kill and team to ask for any sort of update. And after that article was published, we actually got a response u from the COO who basically said that they're going to try to start um, spinning up new validators next week. Um that's obviously newsworthy given how much uh how the um the kiln unstaking um movement just led to a massive surge in the unstaking queue and then um it leads to a lot of other questions that uh we tried to answer

with that story. >> Yeah. And it's also newsworthy because the uh staking queue itself also had a spike recently and it's since gone down but now obviously it's going to be going back up. So when actually when when will this uh ETH actually get restaked? >> So there's a few components to that. For one, all the ETH that was moved into the unstaking queue has to actually work its way through it. And based on um sort of today's um today's waiting time, for lack of a better term, it's about 40 days. So they started to unstake that ETH on September 9th, which basically means that we're going to be looking until the middle of October before any of that would then be available to be

restaked. uh then um they're going to have to go through the staking queue which right now is is just a couple of days. It had spiked much higher previously. It's starting to work its way down. Uh but that's the timeline. Um regardless of anything else that any ETH is going to have to go through the but then there there's other considerations as well. For instance, u the company is spinning up these validators. I'm sure that they're going to have to go through security audits and all sorts of vigorous testing to make sure that those validators and the wallets that service them are safe for customers to use. Uh it's not irresponsible for somebody who is currently a killing client to wonder if it's safe to put that money back there again. And that's going to be incumbent upon it's going to be

incumbent upon the killing team to sort of assuage all of those concerns. uh all of the ETH that is being unstaked, I would imagine, is going to be rest back into the network in one way or another. Um but doesn't necessarily mean it's all going to be put back into Kilm. >> Okay. Oh, wait, I'm sorry. Into Oh, meaning like some stakers might have left Kil or >> Right. I mean, there there's lots of other options. So, somebody who um who uses K to to stake their ETH uh I mean they could do it through various exchanges. they could also go to some of the liquid staking protocols like like like um Lido or Rocketpool. So um if I would imagine that Kil right now is

working hard to um uh I guess regain or just continue to maintain customer trust. >> Okay. And is this something that kil clients should be concerned about about you know what happened with soul and and that kicked off of course this precautionary measure with their ETH? I think so. I mean, and that's not just necessarily my opinion. Uh I mean, anytime a company u preemptively uh pulls a huge amount of money out of the network, especially when it's your core uh your core business, uh that certainly is a cause for concern. I mean, I mean, certainly, uh I appreciate and I imagine the clients appreciate them being cautious and and taking that step as opposed to quote unquote letting it ride

and seeing what happens. But I mean, just imagine someone buying a car and realizing there's some sort of big safety recall. Um, are you are you excited to go and buy that com that brand of a car again without knowing exactly what happened and and without sort of some sort of explanation so that you know it's not going to happen again? Um, it's not a perfect apples to apples comparison, but that's what I think a lot of people will be um will be considering. So again, this is I guess a good example of a security incident because at least from the ether side, it doesn't look like anybody was hurt, but but again, um, every single one of Kil's client or competitors, I would imagine, is trying to talk to some of the same stakers and and saying, "Look, we didn't have these issues before." And it's hard

for me to prognosticate what's going to happen because it hasn't really been disclosed the nature of the incident and and all that. But um but that is something that I I think uh Kllum I'm sure is very aware of and uh the clients uh are as well. And I should note that uh when I heard back from the Kllin team, I wrote um to ask for an interview and and to be able to ask more questions like these and I did not get a response. >> Okay. Okay. Um, yeah. Well, that's telling. So, you know, as I like briefly alluded to earlier, there's a larger picture of what's happening with the ETH staking queue, and that references Leor's piece from last week. So, explain this bigger

picture. >> Right. So, the the the staking and unstaking cues in Ethereum, um, they're done deliberately to ensure stability of the network. Um, for instance, if there's a potential security issue or something, you don't want all of the billions of dollars worth of ETH and I think it's around somewhere 30% of the entire market cap, you don't want it all to just exit immediately because the network would go down. And and same thing with with going in. You want to make sure that um it the network doesn't get for instance like DOS by getting overwhelmed with too much ETH going in. So there are these cues and the way it's set up uh they all there's only one queue everybody trying to go in. It's almost like going to Disney World, like everyone trying to go in. Um, they all

run into the same line. There's no way to jump the line. So, it's just first come, first serve. And as Leor pointed out in his story, um, there's a few big sources of staking demand that could get unlocked uh, in the next couple weeks or months. Um, one are the DATs, the digital asset treasury companies that already own billions of ETH and um, are looking to raise more. Uh, the next thing they're going to do is put it to work securing the network to earn that passive yield. uh all of the ETH spot ETFs uh people I've spoken to like James Ciphford from Bloomberg, they're saying that probably by mid to late October, they're going to get the all clear from the SEC and more importantly the IRS to be able to stake that ETH. So, they're going to start putting it to work. Um

seasonally, ETH tends to do very well on in Q4s. That actually goes for much of crypto, but but ETH as well. and uh and that plus now this uh this kil restaking demand it's all going to merge around the same time and if the dates line up exactly the right way we could lead we could see a very big wait to start staking again I would not be surprised if in like a month from now the the staking and unstaking cues are inverted where perhaps the unstaking queue is just a couple of days and the staking queue could be 40 days >> wow okay all right well you know for those of you who are interested in staking Um, this this is a tip of of what's to come. All right. Well, thanks so much, Steve, for sharing what you

discovered. Great. Thanks, Laura.