Solo Stakers aren’t going away - Long Story Short
We’ve been working on our repository to identify solo stakers, updated as of the Dencun upgrade (March 2024). Here we explore some of the findings from that data on solo staker trends.
This is a summary of the findings, for the full research report see here and for the detailed methodology see README in the project repository.
Problem: Ethereum faces a centralization threat due to liquid staking.
Operating your own staking node requires significantly more time and effort than liquid staking. In addition, liquid staking allows stakers to maintain liquidity in the form of the liquid staking token. As a result, the incentives are skewed in favor of liquid staking, which centralizes the staking layer in the direction of a few staking providers.
Solution: More incentives to solo stake vs liquid stake.
To keep Ethereum decentralized, we must find a way to increase the incentives toward solo staking.
The good news is that the data shows incentives are effective. We find that an inflow of new stakers is correlated with external rewards for solo staking.
In fact, on a net basis, solo stakers have been going up in numbers and gaining share of the network.
The Data - Solo staker trends
How many solo stakers
We see at least 10,053 unique solo stakers, but likely higher up to potentially 18,115. Rocket Pool accounts for about 25% of these solo stakers (using the higher confidence B list).
It's a cumulative count, the upper bound will contain unidentified entities but also solo stakers, lower bound looks for high confidence solo stakers (see the REAMDE for methodology in the repo).
Rate of new solo stakers
Rate shows consistent inflow of new solo stakers over time.
We looked for new unique solo staker accounts month to month. After deposits stabilized from Genesis, there is a positive trend in new Solo Stakers joining the beacon chain.
Share of the Network
Solo Staker share of the network bottomed in Sept 2022 at 7.5% (min) and has climbed to 9.78%. This is a minimum estimate, the actual number higher but within the channel.
Solo Staker Withdrawals
Solo stakers are stickier capital. We can see a clear difference in `exited` validators. Solo stakers are more fixed with most continuing to stake, whereas Entity stake shows increased churn (more susceptible to rotation).
Early Solo stakers: the majority are still active validators, over 80% of pre-genesis solo staker validators are still active.
Solo Staker count increasing despite higher costs
Following the success of major milestones on (Merge: PoS completion, Shapella: withdrawals enabled) Ethereum, solo stakers who were previously sidelined now had the confidence to begin solo staking, as active validators continue to climb.
Notibly, the assumption would be that solo stakers diminish over time, as the cost of entry (32 ETH) becomes increasingly restrictive. However, despite this these individuals are still joining the network.
Attracting New Solo Stakers
External incentives we believe have influenced some of these trends and will continue too.
Airdrops
One major draw for new solo stakers has been the prospect of airdrops which are specifically targeting solo stakers.
We don’t see this trend stopping, as more projects will include solo staking as criteria for their airdrops to give back to the Ethereum community or attracting a user base which is tech-savvy and values-aligned. We believe this is now a motivating factor in the decision to solo stake vs stake with Entities (hold LSTs). We see this already influencing new solo stakers.
Before airdrops: LSTs are simply too attractive for the average staker vs Solo staking.
After Airdrops: With external incentives to solo stake, more potential stakers will be willing to put in the extra work for the additional incentives. This ‘implied’ APY will boost the solo staking share leading to a stronger network which in turn benefits any project built on Ethereum to inherit its security and decentralization.
Why projects are doing this: solo stakers are high-value recipients for allocations beyond benefits to decentralization, it can be an acquisition strategy to onboard actors capable of supporting node operations. Solo stakers have a high retention rate, once they start staking, they tend to stick around.
EigenLayer
EigenLayer has had a big impact on the staking landscape, we can see it clearly in active validators.
EigenLayer TVL is 66% LSTs and 34% Native, By the end of March 9.89% of all Ethereum validators are Native Restaking (96,834 of 979,013 validators).
Another visible effect is rotation among the Liquid Staking Token (LST) players; at its peak, Lido had accumulated nearly 33% of total stake dropping to 28.76% end of April, with most of this TVL moving to new Liquid Restaking protocols (LRTs) EtherFi, Renzo & Puffer.
EigenLayer has incentivized more solo stakers drawn by the prospects of restaking yield and an EigenLayer airdrop.
A larger and growing portion of new Solo Staker validators are Eigenpods (Native Restaked ETH) on Eigenlayer, from our data (last full month) 41.74% of new solo staker validators are Restaking. EigenLayer has attracted new solo stakers to the network, possibly looking for additional yield. The potential rewards from AVS are certainly a factor that these solo stakers are considering in addition to the $EIGEN airdrop (since released) which rewarded native Restakers heavier than LST Restakers.
Key takeaways:
There is a consistent inflow of new solo stakers over time.
Solo staker share of the network is climbing since 2022.
Solo stakers are longer term focused, unmoving, preferring to collect the staking yield and have exposure to the underlying asset (bond) while possibly playing the block reward lottery.
We are seeing increasing incentives targeted at solo stakers, which is likely influencing new solo stakers to join instead of delegating.
EigenLayer changes the game, and solo stakers will need to consider restaking/ running AVS to remain competitive.
Solo stakers aren’t going away and will continue to be an integral part of Ethereum network bolstering decentralization.