Ethereum Developers Act To Prevent Network Overload Due To Staking Surge

In the wake of Ethereum’s most significant software upgrade in over two decades, known as the Merge, the network faces the risk of becoming a victim of its own success. The transition to a more energy-efficient system for ordering transactions on the blockchain has been seamless, but the surging demand for the staking feature threatens to bog down the network.

Staking has become one of the few reliable avenues to earn returns in the crypto space, with Ether owners currently able to yield around 4%. This feature allows participants to lock up Ether tokens in digital wallets to help order transactions and earn yields. According to data from Staking Rewards, approximately 20% of all Ether in circulation, valued at about $41.5 billion, has already been staked. If the current pace persists, projections indicate that 50% of all Ether would be staked by May, reaching a full 100% by December 2024, as per a paper co-authored by Ethereum developer coordinator Tim Beiko.

To prevent the network from reaching a point where no Ether is available for transactions, Ethereum developers have agreed to slow down the influx of staking. On September 14, a consensus was reached to cap the number of new validators, who operate the staking wallets, allowed to join the network every six minutes. This modification, termed the “churn change,” will be implemented in the next major Ethereum software upgrade later this year, ensuring that the theoretical point of 100% staking of all circulating Ether will not be reached for several years.

Matt Nelson, a product manager at Ethereum infrastructure builder Consensys, emphasized the necessity of this slowdown to “buy us some time.” The pause will grant developers the opportunity to devise long-term solutions, potentially adjusting validator rewards to discourage excessive staking.

The majority of individuals do not act as validators directly; instead, they entrust their tokens to services such as Kraken, Lido, and Coinbase Global Inc., which pool the tokens and share the rewards. Lido, offering Ether holders a tradable token while their coins are staked, dominates with a 33% market share, according to data service Dune.

As the Ethereum community navigates this unprecedented success of staking, surpassing original targets, it stands at a crossroads. The developers are tasked with maintaining the network’s efficiency while sustaining the lucrative staking feature that has become a cornerstone of the Ethereum ecosystem. The forthcoming period is pivotal, holding the promise of innovation and adaptation as Ethereum seeks to balance profitability with functionality.

Kernel Reporter

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