Ethereum Shanghai Upgrade Triggers Outflows from Centralized Exchanges to Decentralized Liquid Staking Protocols
Coinbase and Binance See Major ETH Outflows as Frax Finance and Rocket Pool Experience Inflows Following the Upgrade
Wed, 03 May 2023, 08:42 am UTC
The recent Ethereum Shanghai upgrade has triggered a significant shift in the staking landscape, with prominent centralized crypto exchanges Binance and Coinbase experiencing considerable outflows of staked Ether (ETH) as investors turn to decentralized alternatives. According to blockchain data, Coinbase has seen a net outflow of $367 million in staked ETH since April 12, while Binance has experienced a net outflow of $340 million.
On the other hand, decentralized liquid staking protocols like Frax Finance and Rocket Pool are flourishing, with net inflows of $56 million and $68 million, respectively. The Shanghai upgrade, which was a pivotal event for the $225 billion Ethereum network, allowed investors to withdraw roughly $35 billion worth of previously locked tokens, increasing staking participation and attracting institutional investors.
Ahmed Ismail, founder and CEO of FLUID Finance, believes that the upgrade has been instrumental in the growth of decentralized liquid staking solutions. These protocols issue derivative tokens, giving investors access to decentralized finance (DeFi) services, such as lending and borrowing.
DefiLlama data indicates that ETH staked on Frax Finance and Rocket Pool has increased by 32.5 percent and 31 percent in the last month. Lido Finance, the largest decentralized liquid staking protocol, with about $11 billion in deposits, also observed $28 million in deposits compared to its withdrawals post-upgrade.
Tom Wan, an analyst at 21Shares, highlights that regulatory risks in centralized crypto platforms following the bankruptcies of 2022 are persuading investors to choose decentralized staking protocols. Kraken, a crypto exchange, ceased its staking service last February after the U.S. Securities and Exchange Commission (SEC) charged it with offering unregistered securities. Consequently, liquid staking tokens increased in value, favoring decentralized liquid staking.
Moreover, investors are interested in higher staking rewards offered by decentralized protocols. While Coinbase and Binance provide approximately 4 percent annualized rewards for staking ETH, Lido Finance and Frax Finance offer 5-7 percent rates, making them increasingly attractive alternatives.
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