The Ethereum network has something remarkable cooking, but not many people are talking about it: Ethereum staking and how ETH holders rush to stake their tokens.
The concept of Ethereum staking originated from a transition called the Merge. This involved changing the Ethereum blockchain's network model from a proof-of-work system to a proof-of-stake protocol. As a result, miners are no longer essential for validating transactions on the Ethereum network.
All they needed to do was to stake their ETH tokens as an alternative to mining. Generally, a proof-of-stake network is better when considering improvements in blockchain and environmental implications: proof-of-work models of blockchains are known to be more environmentally intensive than the PoS network.
At first, the Ethereum staking feature seemed promising with the proof-of-stake protocol. However, the current situation is concerning. The Ethereum stakers are abusing the feature, and the frequency of staking is alarming to developers and analysts. This level of activity is deemed unhealthy.
Maybe you need a picture of how bad it looks to understand how abnormal the current staking activity is. There are chances that half of the Ethereum circulating supply might be all staked by May 2024.
Furthermore, three-quarters of the circulating supply could be staked in September 2024. And yes, before the end of 2024, all the ETH token circulating supply might as well be staked.
You can see how bad it looks for the Ethereum blockchain, right? That's precisely why the whole situation is concerning for the Ethereum network. Staking at this rate will put a heavy strain on the network and might not even do the job of securing it anymore.
But what could be the solution to this new Ethereum network status? Well, that's where EIPs play a vital role in the blockchain.
An EIP To Prevent Over-staking on the Ethereum Blockchain
EIP on the Ethereum network stands for Ethereum Improvement Proposal, which refers to a planned update addressing various issues on the blockchain. To resolve overstaking on the network, a new EIP is being introduced as a solution.
Already, the developers of the Ethereum network have cooked up an EIP called the EIP-7514. The EIP-7514 is part of another upgrade called the Ethereum Dencun upgrade. So, what purpose will this EIP serve on the Ethereum network? Well, introducing this new EIP will help slow down the rate at which holders are staking their ETH tokens.
So what happens here is that there will be a reduction in how fast people stake their tokens and will provide a more extended period of rewards for stakes. In other words, there will be a slowdown on the Ethereum blockchain. Validators of the Ethereum network will feel the significant effects of the upgrade.
Validators are to process transactions on the Ethereum network and create new blocks. The EIP-7514 implies that the validators will now have a more strict and controlled way of staking as the amount they stake. It could also change how projects on the Ethereum blockchain work.