Ethereum Upgrade Shifts Staking Preference: Decentralized Platforms on the Rise

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Centralized crypto exchange giants Binance and Coinbase are witnessing large outflows of staked ether (ETH) since Ethereum’s Shanghai upgrade, as investors opt for decentralized rivals. Coinbase’s staking platform experienced a net outflow of $367 million staked ETH since April 12, whereas Binance’s staking service saw a net outflow of $340 million.

In contrast, decentralized liquid staking protocols have enjoyed a significant increase in deposits. Frax Finance and Rocket Pool, two major gainers, recorded net inflows of $56 million and $68 million, respectively. Following Ethereum’s highly anticipated upgrade on April 12, which facilitated the withdrawal of $35 billion tokens previously locked in staking contracts, analysts anticipated that this event would boost staking participation, attract institutional investors, and reshape the competition among staking services.

As decentralized liquid staking solutions become more popular, the rewards they offer become increasingly attractive compared to those offered by centralized platforms. For instance, Coinbase and Binance provide around 4% annualized rewards for staking ETH, while decentralized platforms Lido Finance and Frax Finance offer 5-7% rates. The driving factor behind these higher rewards in decentralized protocols could be the lower yield profile of centralized liquid staking.

Another possible reason for this shift towards decentralized staking protocols is the regulatory risks and aversion to centralized crypto platforms, as evidenced by last year’s bankruptcies. This February, crypto exchange Kraken had to close its staking service after being charged by the U.S. Securities and Exchange Commission (SEC) for offering unregistered securities. Consequently, liquid staking tokens surged as the SEC appeared to target staking service providers, thus benefiting decentralized liquid staking.

Head of digital assets at investment firm Recharge Capital, John “Omakase” Lo, suggests that regulatory pressure on centralized entities might continue, leading to increasing uncertainty and negatively impacting deposit retention.

Despite these recent outflows, Binance and Coinbase remain among the largest ETH staking providers. However, their market shares have diminished, with Binance’s dropping to 4.5% from 5.7% a month ago and Coinbase’s falling to 12.3% from 13%. Data from blockchain intelligence firm Nansen reveals that both exchanges could face further outflows, with Coinbase having $191 million of staked ETH awaiting withdrawal while Binance has $41 million in pending withdrawal requests.

Source: Coindesk

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