The world of cryptocurrency is constantly evolving, and experts are always looking for the next big thing. Recently, there has been a shift in the way investors are approaching their cryptocurrency investments, particularly when it comes to Ethereum (ETH). Ether stakers are fleeing Crypto Exchange giants like Binance and Coinbase and seeking alternative options like Rocket Pool and Frax Finance. Why is this happening, and what does this mean for the world of cryptocurrency?
Firstly, let’s take a closer look at Ether staking. Staking is the process of locking up a certain amount of cryptocurrency in order to help secure the network and verify transactions. In return, stakers receive rewards for their contributions. Ether staking specifically involves locking up ETH in order to help maintain the Ethereum network. The more Ether that is staked, the more secure the network becomes.
Now, let’s talk about the recent trend of Ether stakers moving away from the more traditional crypto exchanges like Binance and Coinbase. These exchanges have been around for a long time and are trusted by many investors. However, there are several reasons why investors are looking for alternative options.
One of the main reasons is the high fees associated with staking Ether on these platforms. Binance charges a 25% commission fee for staking rewards, while Coinbase charges a 25% fee for staking rewards plus an additional 1.5% fee for converting staking rewards to USD. These fees can add up quickly and eat into investor profits.
Another issue is the lack of flexibility when staking on these platforms. Binance, for example, requires stakers to lock up their Ether for a set period of time, which can be up to two years. This means that investors cannot easily liquidate their investments if they need to.
Given these concerns, Ether stakers are flocking to newer platforms like Rocket Pool and Frax Finance. These platforms offer lower fees, more flexible staking options, and additional benefits that investors find appealing.
Rocket Pool is a decentralized Ethereum staking network that offers excellent returns with higher flexibility for stakers. Rocket Pool users can earn rewards without transaction fees, and also get the freedom to transfer rewarded Ether to any wallet or exchange. The most significant advantage of staking Ether on Rocket Pool in comparison with the centralized staking platforms is that investors can cash out their staked Ether any time they want without the fear of locking up for a said period.
Frax Finance, on the other hand, takes a different approach to cryptocurrency. Frax is a “stablecoin”, which means that it is pegged to the value of a specific currency (in this case, the US dollar). Frax Finance offers an interest-bearing stablecoin (called fUSDC), and those who stake their Ether with the platform can earn rewards in fUSDC. This provides investors with a stable return on their investment, unlike other cryptocurrencies.
In conclusion, the trend of Ether stakers fleeing from traditional exchanges like Binance and Coinbase is likely to continue as more innovative and flexible alternatives like Rocket Pool and Frax Finance emerge in the market. While there are risks involved with any investment, these newer platforms offer investors lower fees, more flexibility, and additional benefits that make them highly attractive. As the world of cryptocurrency continues to evolve, it is likely that we will see more and more investors turning to newer alternatives like Rocket Pool and Frax Finance for their staking needs.
Centralized crypto exchange giants Binance and Coinbase have been hit by a significant outflow of staked ether (ETH) since Ethereum’s Shanghai upgrade. Blockchain data shows that investors are flocking to decentralized rivals, with Coinbase suffering a $367 million net outflow of staked ETH since April 12, and Binance experiencing a net outflow of $340 million. Decentralized liquid staking protocols, on the other hand, have benefited from a sharp rise in deposits, with Frax Finance and Rocket Pool, the two largest gainers, recording net inflows of $56 million and $68 million, respectively.
The outflows from centralized exchanges follow Ethereum’s highly anticipated Shanghai upgrade on April 12, which allowed investors to withdraw some $35 billion of tokens previously locked up in staking contracts. Analysts predicted that the event would be a major milestone for the $225 billion network, likely boosting staking participation, attracting institutional investors and reshuffling the competition between staking services.
Regulatory risks and aversion to centralized crypto platforms after last year’s bankruptcies are likely among the reasons that drive investors to decentralized staking protocols, according to Tom Wan, an analyst at digital asset investment firm 21Shares. Regulatory pressure on centralized entities may continue, and the uncertainty is not good for retaining deposits. Investors could also be swayed by higher staking rewards that decentralized protocols can provide. Currently, Coinbase and Binance offer around 4% annualized reward for staking ETH, whereas decentralized protocols Lido Finance and Frax Finance provide 5-7% rates.
Despite recent outflows, Binance and Coinbase remain among the largest ETH staking providers. However, their market share has fallen, with Binance’s market share dropping to 4.5% from 5.7% a month ago, while Coinbase’s share dropped to 12.3% from 13%. The two exchanges face further outflows, with Coinbase having some $191 million of staked ETH waiting to be withdrawn, while Binance has $41 million in withdrawal requests in its queue.
Liquid staking protocols issue a derivative token that represents the amount of locked tokens and lets investors access decentralized finance services such as lending and borrowing. Boosted by new deposits, the amount of ETH staked on Frax and Rocket Pool has grown by 32.5% and 31% in the past 30 days, respectively, according to DefiLlama data. Lido Finance, the largest decentralized liquid staking protocol with some $11 billion of deposits, has also booked some $28 million more deposits than withdrawals since April 12.
The recent outflows from centralized staking providers and the corresponding inflows into decentralized liquid staking protocols demonstrate the growing demand for decentralized finance services. Investors are seeking higher yields and are wary of the regulatory risks associated with centralized crypto platforms. The trend towards decentralization is likely to continue, as investors seek out innovative and secure ways of participating in the rapidly growing world of decentralized finance.
