The now-defunct crypto lender, Celsius Network, has recently stirred up concerns with changes to its ETH staking strategy, essentially exacerbating the already long queue for activating new validators on the Ethereum network. Over a two-day period, Celsius transferred ETH into staking contracts after redeeming nearly $813 million of staked ETH from Lido Finance. The company has since deposited $745 million of ETH since early June, as data provided by Arkham Intelligence indicates.
Tom Wan, an analyst at crypto investment product manager 21Shares, observed that these transfers have stretched the already lengthy queue to establish new validators on the Ethereum network. “If Celsius decided to stake all the 428k ETH, it would take 45 days and 4 hours to clear the whole activation queue,” he said. “Essentially adding 6 days & 15 hours to the queue.” The elongated queue for establishing new validators on the Ethereum network now stands at 44 days, with Celsius potentially responsible for almost an additional week.
This transaction series follows Celsius’ reshuffling of its staked ETH holdings since Ethereum’s Shanghai upgrade permitted withdrawals from staking contracts in April. At the time, Celsius held nearly 460,000 ETH, worth approximately $870 million, staked with Lido Finance, while about 160,000 tokens, valued at $300 million at current prices, were deployed in its own staking pool.
These transfers unfolded as the firm underwent restructuring following its bankruptcy protection filing in July and its subsequent sale to Fahrenheit, an investment group supported by Arrington Capital. As reported, Celsius staked nearly $75 million worth of ETH through the staking service Figment in mid-May. On-chain data reveals that the substantial transfer from Celsius to Figment occurred via fourteen separate transactions between May 10 and 12, totaling about 40,928 ETH. At the time of writing, the company had staked roughly $199 million of ETH through Figment and deposited around $12 million in the Celsius staking pool, according to data from Arkham. Celsius wallets still hold an estimated $109 million of ETH following these transfers.
However, the recent actions by Celsius have placed even more pressure on the already congested queue of individuals attempting to add new validators to the Ethereum network. Validators play a crucial role in a proof-of-stake blockchain, as they affect network security and oversee transactions in exchange for rewards by staking tokens. The demand for staking has surged significantly since the Shanghai upgrade, which included code enabling the withdrawal of ETH staked in the Beacon Chain, activated on April 12. In comparison to withdrawals, deposits have risen by nearly $5.5 billion, causing new entrants to wait around a month to set up validators, as indicated by data provided by blockchain intelligence firm Nansen.
Celsius Network’s collapse in the summer of 2022 amid the crash in prices of most major crypto assets can be partly attributed to its inability to withdraw staked and locked ETH from staking providers, such as Lido Finance, causing a rush from its own depositors to withdraw their funds from Celsius.