The Staking Economy: How ETH Staking Built a $112B Security Market

Since the Beacon Chain launched in 2020, ETH staking has grown to 35 million ETH, securing $112 billion across Ethereum. The result is a new staking economy.

Staking starts with a familiar exchange: lock up your ETH, help secure the network, and earn yield. Since the Beacon Chain launched in December 2020, however, ETH staking has grown beyond that description. More than 35 million ETH now secures Ethereum, representing $112 billion in economic security across liquid staking, lending protocols, restaking, and interconnected risks that many participants still don’t fully understand.

This article begins with Ethereum’s move to Proof of Stake. It explains why Ethereum adopted staking, how liquid staking addressed the liquidity problem staking created, what restaking added, who now controls the market, and how each addition changed the risk profile. It complements our Ethereum history and RWA tokenization research by tracing how ETH staking grew into a $112 billion security market that secures Ethereum today.

Before Staking: Why Proof of Work Had to Go

Ethereum launched in July 2015 on a Proof of Work consensus mechanism, the same approach Bitcoin uses. Miners competed to process transactions by performing energy-intensive computational work, and the miner who won each round received the block reward. That competition secured the network because attacking it required controlling more than 50% of its total computational power. Acquiring enough hardware and electricity to reach that threshold would cost more than any rational return from a successful attack.

Proof of Work worked. As Ethereum grew, however, three problems became harder to ignore.

Three Challenges of Proof of Work

The first was energy consumption. At its peak, Ethereum’s Proof of Work mining consumed approximately 112 terawatt-hours of electricity each year, comparable to a medium-sized country. That level of energy use attracted legitimate environmental criticism. More importantly, it became a growing regulatory and reputational risk for a network seeking institutional adoption.

The second was security economics. Under Proof of Work, network security depended on the total value of mining hardware and energy committed to the network. In turn, that security depended on miner revenue, primarily from block rewards and transaction fees. As block rewards declined through Ethereum’s issuance schedule, maintaining security required either higher transaction fees or a higher ETH price to keep miner revenue at sustainable levels. That created a long-term dependency between network security and market conditions.

The third was the entry barrier. Running an Ethereum miner required specialized hardware (GPUs or ASICs), significant capital investment, access to cheap electricity, and technical infrastructure management. Those requirements concentrated mining in the hands of well-resourced professional operators located in low-cost electricity jurisdictions. As a result, Ethereum’s mining distribution no longer matched its decentralization goals.

Proof of Stake addressed all three problems. It replaced energy-intensive computation with capital commitment. Validators lock ETH as their stake, and the probability of proposing and attesting to blocks is proportional to the amount staked rather than the amount of computational work performed. When The Merge took place in September 2022, Ethereum’s energy consumption fell by 99.95%, as documented in our Ethereum history research. Security became a function of staked capital rather than hardware investment, while the entry barrier moved from specialized equipment to accessible capital.

The Beacon Chain: ETH Staking Begins

Ethereum’s transition to Proof of Stake did not begin with The Merge in September 2022. It began almost two years earlier, when the Beacon Chain launched on December 1, 2020.

The Beacon Chain was Ethereum’s Proof of Stake consensus layer, running alongside the existing Proof of Work execution layer. To activate it, the Ethereum Foundation needed at least 16,384 validators to deposit 32 ETH each, a total of 524,288 ETH, into a one-way deposit contract before launch. If the threshold was not met, the launch would be delayed.

The threshold was met with hours to spare. By December 1, more than 21,000 validators had deposited over 674,000 ETH into the contract. The Beacon Chain launched on schedule. Ethereum’s Proof of Stake era had begun, although it would coexist with Proof of Work for almost two years until The Merge unified the execution and consensus layers.

One detail would define the ETH staking market for the next two and a half years: deposits were one-way. ETH locked in the Beacon Chain deposit contract could not be withdrawn until a future upgrade enabled withdrawals. Validators knew this before they deposited because the deposit was explicitly described as irreversible until withdrawal functionality became available. Even so, more than half a million ETH was committed on the first day.

Early stakers accepted an open-ended lock-up with no guaranteed withdrawal date and no secondary market for their staked ETH. Their willingness to commit capital revealed something important. Confidence in Ethereum’s long-term future was strong enough for participants to lock up substantial capital without the liquidity that rational financial actors would normally expect. That demand later gave rise to liquid staking, which addressed the problem those early deposits created.

Three Ways to Participate in ETH Staking

Before discussing liquid staking and restaking, it helps to understand the three staking models that define ETH staking today and what each one requires.

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Liquid Staking: Solving the Liquidity Problem

The most important innovation in the staking economy was not staking itself. It was liquid staking, which resolved the tension between the capital commitment staking requires and the liquidity DeFi participants need to keep their capital productive.

When users stake ETH directly on the Beacon Chain, they lock up their capital. They earn staking rewards, but they cannot use the staked ETH anywhere else. In a DeFi ecosystem that offers lending yields, liquidity provision rewards, and other income-generating opportunities, staking carries an opportunity cost. Every ETH committed to staking is ETH that cannot be deployed elsewhere. For participants with large ETH holdings, that trade-off kept some capital out of the staking market.

Liquid staking solved this problem by issuing receipt tokens such as stETH, rETH, and cbETH. These tokens represent a claim on staked ETH and its accumulated rewards. Holders can trade them on secondary markets or use them across DeFi protocols while the underlying ETH continues earning staking rewards. A holder of stETH receives both staking rewards, through the token’s rebasing mechanism, and continued access to productive capital. Likewise, rETH increases in value as staking rewards accrue while remaining available for use throughout the DeFi ecosystem.

As a result, the staking market expanded dramatically. Capital that would otherwise have remained unstaked because of liquidity concerns entered the market through liquid staking protocols. Staked ETH grew from approximately 10 million ETH in early 2022 to more than 35 million ETH by mid-2026. That growth reflects, in part, the removal of the liquidity barrier that had limited earlier participation.

The Shapella Upgrade: Completing the ETH Staking Economy (April 2023)

The Shanghai/Capella upgrade, universally known as Shapella, activated on April 12, 2023, and completed a major milestone for ETH staking. For the first time, validators could withdraw staked ETH from the Beacon Chain.

Before the upgrade, many analysts expected the release of more than two years of accumulated staked ETH to trigger widespread selling as validators exited their positions. The concern was reasonable. Validators who had staked ETH when it traded near $600 could now withdraw assets worth around $1,800, creating the potential for significant selling pressure.

Instead, the opposite happened. In the days and weeks after Shapella, validator inflows consistently exceeded outflows. Rather than triggering a wave of exits, the withdrawal mechanism made ETH staking more attractive. Participants who had delayed staking because of the indefinite lock-up now had a clear path to withdraw their ETH. That certainty encouraged more participants to stake.

Staked ETH eventually reached an all-time high of 35.3 million ETH, representing more than 29% of the total supply. Since Shapella, the trend has remained consistently upward. Weekly net inflows averaged approximately 120,000 ETH through much of 2024, while the validator entry queue reached record levels, peaking at 450,000 ETH during the busiest periods. Shapella did not create an exit from ETH staking. It expanded participation and completed the final piece of Ethereum’s staking economy.

Restaking: The Third Layer of Complexity

If liquid staking solved the liquidity problem of ETH staking, restaking allowed the same staked ETH to secure multiple networks while earning rewards from multiple sources.

EigenLayer launched its restaking protocol on the Ethereum mainnet in June 2023 and became fully operational in April 2024. Validators who have already committed ETH to ETH staking can opt in to secure additional protocols, known as Actively Validated Services (AVSs), with the same staked capital. In return, they earn rewards from those AVSs in addition to their Ethereum staking rewards.

Ethereum’s ETH staking system provides approximately $112 billion in economic security through capital already committed to the network. AVSs that require their own security would otherwise need to build a separate validator set and staking economy from the ground up, an expensive and time-consuming process. EigenLayer allows these protocols to use Ethereum’s existing security by paying validators to extend their responsibilities beyond Ethereum and validate AVSs.

The market responded quickly. By the time EigenLayer became fully operational in April 2024, approximately 70% of new Ethereum validators joined the protocol. By late November 2024, more than 6.25 million ETH, worth approximately $19.3 billion, was locked in restaking, with native ETH accounting for 83.7% of deposited assets.

Market Adoption

As of early 2026, EigenLayer secured more than $11 billion in restaked ETH while supporting AVSs such as EigenDA, Brevis, Lagrange, and AltLayer. Competing restaking protocols, including Symbiotic and Karak, have since introduced different approaches to slashing conditions and AVS support, although EigenLayer remains the market leader.

Liquid restaking extends ETH staking further. Instead of locking ETH directly in EigenLayer, participants can hold liquid restaking tokens (LRTs) issued by protocols such as ether.fi and Renzo. These tokens represent a restaked ETH position while remaining transferable and usable across DeFi. Among liquid restaking providers, ether.fi ranks third with 2,148,329 ETH, representing approximately 6.0% of the market.

The Yield Picture in 2026

Understanding ETH staking requires understanding how yields change across each stage. Basic staking, liquid staking, and restaking each offer different return profiles, but each also introduces a different set of risks.

Base ETH Staking Yield

ETH staking generated an average APR of 2.78% across approximately 897,000 active validators as of late May 2026. That is a meaningful decline from the 4% or higher yields available in 2023.

Two factors explain the decline. First, the amount of staked ETH has continued to grow. As more validators compete for the same issuance, rewards per validator decrease. Second, the Dencun upgrade reduced Layer 2 transaction costs, lowering the priority fees validators previously earned from Layer 2 data submissions.

Ethereum’s supply dynamics also changed during this period. In 2023, the network burned approximately 125,000 more ETH than it issued. Also, in 2024, Ethereum returned to modest inflation, adding roughly 69,000 ETH to supply. In 2025, inflation accelerated, with supply increasing by approximately 563,000 ETH. Reduced base fee burns after Dencun shifted Ethereum from a deflationary to an inflationary supply model. That change also contributed to ETH’s weaker performance relative to Bitcoin during the 2024-2026 period.

Liquid Staking Premium

Liquid staking protocols such as Lido charge a fee on ETH staking rewards, typically around 10%. The protocol distributes those fees between node operators and the DAO treasury. As a result, stETH holders generally earn between 2.5% and 3.2%, slightly below the returns available through solo staking. In exchange, they retain liquidity because they can trade stETH or use it throughout DeFi instead of locking their capital.

Restaking Additional Yield

Restaking builds on ETH staking by adding rewards from AVSs on top of the base staking yield. The additional return varies widely across AVSs and market conditions, although promotional materials have consistently presented restaking as offering meaningfully higher returns than staking alone.

Those higher returns come with additional risk. A 12% restaking return and a 4% ETH staking return rely on very different assumptions about validator concentration, slashing exposure, smart contract risk, and liquidity risk.

That distinction is the most important point to understand about restaking. Higher yields are not free money. They compensate validators for accepting additional responsibilities and extending their security commitments beyond Ethereum to support AVSs.

The Risks of ETH Staking

The ETH staking ecosystem consists of multiple layers: native staking, liquid staking, restaking, and liquid restaking. Each layer introduces new risks while retaining the risks of the layer below it.

Slashing Risk

Slashing is the protocol-level penalty applied to validators that misbehave. Validators can be slashed for double-signing conflicting blocks, remaining offline for extended periods, or participating in coordinated attacks on the network. The protocol enforces the penalty by destroying a portion of the validator’s staked ETH. For native ETH staking, slashing requires genuine misconduct. Validators running reliable infrastructure face very little slashing risk in practice.

Restaking introduces additional slashing conditions. Each AVS can define its own rules for validators that choose to secure it. Those rules may differ from Ethereum’s native slashing conditions and can penalize behavior that would not trigger a penalty on Ethereum itself. Validators that restake to an AVS with poorly designed rules may face unexpected losses. The smart contracts that enforce AVS slashing have also received far less real-world testing than Ethereum’s native slashing mechanism.

Smart Contract Risk

Liquid staking protocols such as Lido, Rocket Pool, and ether.fi rely on smart contracts to manage billions of dollars in user assets. A vulnerability in those contracts could result in the loss of staked ETH. Security audits and bug bounty programs reduce this risk, but they cannot eliminate it. As our crypto hacks research shows, even well-audited protocols have suffered exploits.

Restaking increases smart contract risk further. In addition to the EigenLayer protocol, every AVS introduces its own smart contracts and security assumptions. As more AVSs launch, the overall attack surface continues to expand.

Liquidity Risk

The June 2022 stETH depeg showed that liquid staking tokens can trade below their redemption value during periods of market stress. The Shapella upgrade reduced this risk by allowing direct ETH withdrawals, but liquid restaking tokens face a more complex version of the same challenge.

An LRT such as eETH represents ETH that is both staked on Ethereum and committed to one or more AVSs. If an AVS experiences a slashing event, the underlying value of that LRT declines. If market participants expect additional slashing or lose confidence in the AVS, they may sell the token below its theoretical value. Compared with stETH, LRT markets remain less mature and have thinner liquidity, increasing the potential size of any depeg.

Concentration Risk

Lido’s 28.9% share of all staked ETH remains one of the most closely watched risks in ETH staking. The four largest staking providers collectively control 51% of the validator set under the Nakamoto Coefficient, while the three largest control 45.2% of all staked ETH. If Lido experienced a technical failure, suffered an exploit, acted maliciously, or became the target of regulatory action, the effects on Ethereum’s staking ecosystem would be significant.

Ethereum developers have debated this concentration risk for years. Some argue that any single provider controlling more than one-third of all staked ETH creates a theoretical risk to consensus safety. Lido has responded through governance discussions and technical proposals aimed at limiting its market share, but no permanent solution has been adopted. Since those discussions began, Lido’s share has continued to grow.

”Each layer of ETH staking adds yield. Each layer also introduces risks that do not exist at the layer below it. Evaluating both the return and the risk is essential to understanding the staking economy.”

The Staking Economy and ETH’s Value Proposition

ETH staking has changed ETH’s value proposition, although the outcome is more complex than the “ultrasound money” narrative that shaped Ethereum discussions in 2021 and 2022.

The investment case for ETH as a deflationary asset relied on two mechanisms working together. EIP-1559 burned a portion of transaction fees when network activity increased, while Proof of Stake reduced ETH issuance compared with Proof of Work. During periods of high network activity, such as the 2021 NFT boom, Ethereum burned more ETH than it issued. Supply fell as demand increased, supporting the “ultrasound money” thesis.

Ethereum’s supply dynamics have changed since then. In 2023, the network burned approximately 125,000 more ETH than it issued, marking the peak of the “ultrasound money” era. In 2024, Ethereum returned to modest inflation. By 2025, supply had grown by approximately 563,000 ETH. The Dencun upgrade reduced Layer 2 transaction costs, helping Ethereum scale more efficiently. At the same time, it reduced mainnet base fee burns. During the first quarter of 2025, Ethereum burned only 50 to 70 ETH per day, reversing the deflationary supply model that supported the “ultrasound money” thesis during periods of high network activity.

ETH Staking Yield

That does not mean ETH staking has lost its role in Ethereum’s economics. Stakers earn an average annual yield of approximately 2.78% on nearly 29% of Ethereum’s circulating supply, creating a meaningful stream of protocol revenue that did not exist under Proof of Work. ETH staking gives ETH a native yield, changing how investors and institutions evaluate the asset. As our research on RWA tokenization shows, institutions value on-chain assets that combine native yield with programmable settlement.

Ethereum’s supply model also depends on network activity. High activity increases fee burns and can return the network to a deflationary supply model. Lower activity, or activity that moves from mainnet to Layer 2 networks, reduces fee burns and can produce modest inflation. The investment case for ETH depends on both ETH staking and sustained network usage.

What I’m Watching

The ETH staking economy in mid-2026 is entering a new phase. Lower staking yields make relative returns more important than they were in earlier years. If on-chain yields rise well above the current 2.78% staking APR, capital could move out of staking more quickly. The 2026 ETH staking market is therefore more sensitive to changes in competing yields.

The metric I watch most closely is the relationship between the base ETH staking yield and the returns available from competing assets, including tokenized U.S. Treasuries, other Proof of Stake networks, and DeFi lending protocols. As long as ETH staking offers competitive risk-adjusted returns, the amount of staked ETH should remain stable or continue to grow. If higher-yield alternatives persist, particularly tokenized U.S. Treasuries, which our RWA tokenization research shows have expanded rapidly, some investors who entered ETH staking primarily for yield rather than network security may withdraw their capital. That would reduce the total amount of staked ETH and the economic security it provides.

Restaking Outlook

The second area I am watching is the development of EigenLayer’s AVS ecosystem. The restaking model depends on AVSs generating enough revenue to compensate validators for taking on additional security obligations. By 2026, liquid restaking has created a large secondary market for security, allowing other protocols to pay for Ethereum’s validator set instead of building one from scratch. Whether those protocols can generate enough revenue to support those payments remains an open question. Today, part of the restaking yield still comes from token incentives rather than sustainable protocol revenue.

The third area is the effect of the Pectra upgrade on validator concentration. By increasing the maximum effective balance to 2,048 ETH, Pectra allows large operators to consolidate validator balances more efficiently. That improves operational efficiency, but it may also reduce the number of independent validators participating in consensus. How validator participation changes after Pectra, and whether the upgrade eases or worsens concentration among providers such as Lido and large institutional staking services, will shape Ethereum’s decentralization over the next market cycle.

ETH staking began as a way to secure the Ethereum network. Six years later, it supports a security market worth more than $112 billion, complete with liquid staking, restaking, derivative assets, and new forms of risk. Understanding ETH staking today requires more than tracking yield alone. It requires evaluating validator participation, supply dynamics, protocol concentration, and restaking risk together. Those metrics provide the clearest view of how Ethereum’s economic model operates in 2026.

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