Lido's 8 Million ETH Consolidation: A Shift in Ethereum's Staking Landscape

Lido is in the process of relocating over 8 million ETH, worth approximately $160 billion, as part of its plan to consolidate hundreds of thousands of legacy validators.

This consolidation, made possible by the Pectra upgrade's introduction of compounding validators, will reduce the total number of validators on the Ethereum network from around 880,000 to about 628,000, a decrease of nearly one-third. The number of attestation messages that need to be propagated each Epoch could also drop by approximately 29%.

This change is expected to have a significant impact on operational burdens, particularly for large staking service providers. According to Lido's estimates, the temporary loss of rewards amounts to roughly 0.28% of the protocol's annual staking rewards. However, the benefits of compounding validators are more pronounced for smaller stakers who struggle with consolidating their scattered ETH.

On a relative basis, compounding validators offer an average consensus layer APR improvement of around 4.7% compared to non-compounding validators. This means that smaller stakers can now reduce idle balances and allow rewards to participate more directly in subsequent staking.