• Binance and Coinbase staking platforms record large outflows of staked ETH since the Shanghai upgrade.

• Decentralized liquid staking protocols also record a sharp rise in deposits within the period. 

The US regulators have in the last couple of years mounted serious pressure on centralized crypto exchanges with the latest coming against the Kraken exchange. It can be recalled that the US Securities and Exchange Commission (SEC) forced the exchange to shut down its taking services in February for offering unregistered securities. Later, this ended in a $30 million settlement.

Based on the SEC’s statements, it considers both crypto lending and staking-as-a-service programs as securities. This has forced many Ethereum investors to ditch centralized staking entities for decentralized protocols that comparatively offer better yields. 

According to a Dune Analytics data dashboard, investors have migrated in large quantities from Binance and Coinbase to the decentralized protocols since the Shanghai upgrade. Since April 12, about $367 million net outflow of staked ETH has hit the Coinbase staking platform. The situation is reportedly getting worse by the day as new deposits have been outpaced by withdrawal requests which include reward withdrawals and full exits. 

The Binance staking service has also suffered a net outflow of $340 million over the same period. The data looks quite interesting on the other hand, as decentralized liquid staking protocols record a sudden increase in deposits. 

More Ethereum investors in line to withdraw from Binance and Coinbase

Over the period, Frax Finance has recorded net inflows of $56 million with Rocket Pool seeing a $68 million net inflows. In percentage-wise, the amount of ETH staked on Frax and Rocket Pool in the last 30 days has surged by 32.5 percent and 31 percent respectively. 

Lido Finance is recognized as the largest decentralized liquid staking protocol and has recorded deposits of $11 billion. Since April 12, its deposits have been $28 million (15,208 ETH) more than withdrawals. This trend is expected to continue as the regulatory pressure on centralized entities may not stop anytime soon according to John “Omakase” Lo, head of digital assets at investment firm Recharge Capital. According to him, the uncertainty is not good to retain deposits.

Also, Tom Wan, an analyst at digital asset investment firm 21Shares, suspects that the series of bankruptcies that hit centralized exchanges last year is the primary factor for this number of outflows. 

Data by blockchain intelligence firm Nansen shows that Binance has another $41 million in withdrawal requests while Coinbase has $191 million of staked ETH in line to be withdrawn. 

Another reason for the huge migration is the staking rewards. In comparison, both Coinbase and Binance offer annualized rewards of 4 percent for staking Ethereum. Interestingly, Lido Finance and Frax which are both decentralized protocols offer 5 to 7 percent rates. 

The recent Shanghai upgrade gives investors the option to withdraw about $35 billion worth of tokens locked up in staking contracts. According to Ahmed Ismail, founder, and chief executive of liquidity aggregator platform FLUID Finance, the upgrade is a major “growth factor” for decentralized liquid staking solutions. The liquid staking protocols usually offer derivative tokens representing the number of locked tokens to enable investors to access Decentralized Finance (DeFi) services including lending and borrowing. 

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