ETH Staking Hits Record High Amid Falling Price, Deflationary Narrative Weakened

Ethereum staking has reached an all-time high of around 42 million tokens, accounting for approximately one-third of Ethereum's total supply. However, despite this milestone, the price of ETH fell more than 2% on August 11, dropping below $1,900 and temporarily trading at $1,874.67.

This unexpected drop in price can be attributed to the fact that most staked ETH is done through liquid staking protocols such as Lido. These protocols issue equivalent derivative tokens like stETH and eETH, which can be freely traded, used as collateral, or sold off as liquidity in DeFi.

Furthermore, weak on-chain activity has led to a rising ETH inflation rate due to the failure of the burn mechanism. Significant price surges often rely on high Gas fees to burn ETH, achieving deflation. However, Layer 2 networks have diverted a large volume of mainnet transactions, keeping mainnet Gas fees low and hindering the burn process.

The total amount of staked ETH has increased rewards paid by the network to validators. Without sufficient burning, the total supply of ETH has shown slight inflation, weakening its deflationary narrative.