33% of ETH is now staked, with much higher inflows to staking post-Shapella upgrade. This is currently boosted by EigenLayer, offering restaking options directly to depositors or through multiple Liquid Restaking protocols, such as Ether.fi, Puffer, and Renzo. Depositors can earn EigenLayer and/or Protocol points by restaking.

Furthermore, LRT holders can also utilize Pendle to realize their yields by selling their yield tokens. This yield amount can go up to highs of 50% APY, much higher than the 3.5-4% in ETH staking rewards.

Notably, ETH supply on exchanges has fell to 2016 levels. ETH staking is one factor alongside users being more cognizant about custody risks after FTX’s insolvency. Furthermore, with ETH being integrated into multiple DeFi use cases, there are opportunity costs for leaving ETH on exchanges.

With ETH staking at new highs and ETH on exchanges at its lows, what happens when demand for ETH comes in? With exchanges facilitating most of the current spot trading volumes, there would be a point where there is “too little supply,” resulting in thinner books and volatility.

Though it is not too impactful now, when meaningful flow comes in, e.g., ETH ETF, we might see scenarios such as higher volatility and even higher Coinbase premiums than we’ve seen with BTC.

Disclosure: I have ETH Spot, ETH Longs on perps, ETH in Ether.fi + EigenLayer, and staked ETH positions.