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- Centralized crypto exchange giants Binance and Coinbase have suffered large outflows of staked ETH since Ethereum’s Shanghai upgrade, as investors flock to decentralized alternatives amid regulatory concerns and chase higher rewards.
- Decentralized liquid staking protocols such as Frax Finance and Rocket Pool have enjoyed a sharp rise in deposits, with Frax Finance and Rocket Pool recording net inflows of $56 million and $68 million, respectively.
Investors Ditch Centralized Exchanges for Decentralized Alternatives Amid Regulatory Concerns
Blockchain data shows that since Ethereum’s Shanghai upgrade, investors have been moving their staked ether (ETH) from centralized exchange giants like Binance and Coinbase to decentralized rivals. According to a Dune Analytics data dashboard, Coinbase’s staking platform has experienced a net outflow of $367 million of staked ETH since April 12, as withdrawal requests outpaced new deposits. Binance’s staking service has also seen a net outflow of $340 million.
In contrast, decentralized liquid staking protocols like Frax Finance and Rocket Pool have enjoyed a sharp rise in deposits. Frax Finance and Rocket Pool have recorded net inflows of $56 million and $68 million, respectively. Boosted by new deposits, the amount of ETH staked on Frax and Rocket Pool has grown 32.5% and 31% in the past 30 days, respectively, according to DefiLlama data.
Lido Finance, the largest decentralized liquid staking protocol with some $11 billion of deposits, has also booked some $28 million (15,208 ETH) more deposits than withdrawals since April 12.
Regulatory Concerns and Higher Rewards
Regulatory risks and aversion to centralized crypto platforms after last year’s bankruptcies are likely among the reasons driving investors to decentralized staking protocols. Regulatory pressure on centralized entities may continue, according to John “Omakase” Lo, head of digital assets at investment firm Recharge Capital.
Investors could also be swayed by higher staking rewards that decentralized protocols can provide. Currently, Coinbase and Binance offer around 4% annualized reward for staking ETH, whereas decentralized protocols like Lido Finance and Frax Finance provide 5-7% rates.
Despite recent outflows, Binance and Coinbase remain among the largest ETH staking providers. However, Binance’s market share fell to 4.5% from 5.7% a month ago, while Coinbase’s share dropped to 12.3% from 13%. The two exchanges face further outflows, according to data by blockchain intelligence firm Nansen. Coinbase has some $191 million of staked ETH waiting to be withdrawn, while Binance has $41 million in withdrawal requests in its queue.