Is a Supply Shock Coming? Analyzing the Scarcity Logic Behind ETH Staking and Institutional Swallowing

Ethereum is undergoing a profound transformation in its stake distribution, driven by technological upgrades like the Merge to Proof-of-Stake and the EIP-1559 fee-burning mechanism. This has shifted ETH's economic model to an elastic supply system, where network activity can cause deflation.

The current ETH stake distribution is dominated by four core forces:

Staking Sector: Nearly 30% of circulating ETH is staked, valued at over $160 billion. However, this sector is highly concentrated, with services like Lido Finance controlling a significant portion, raising concerns over centralization.
DeFi Ecosystem: Over $89 billion in value is locked in Ethereum's DeFi protocols. This ETH acts as productive capital for lending and liquidity, underpinning the ecosystem's health and reducing its circulating supply.
Centralized Exchange Reserves: ETH reserves on exchanges are at all-time lows, indicating a major shift from short-term trading to long-term holding and staking, which reduces immediate selling pressure.
Large Institutional Holders: The approval of spot Ethereum ETFs has led traditional giants like BlackRock to accumulate massive stakes. BlackRock's ETF alone holds over 3 million ETH, making it a major whale. Public companies are also adopting ETH as a reserve asset.

The convergence of these factors—mass staking, DeFi locking, exchange outflows, and institutional accumulation—is creating a potential supply shock. The amount of freely tradable ETH is shrinking rapidly while demand grows, fundamentally strengthening Ethereum's value proposition beyond technology and into its robust and institutionalized stake structure.

Author: Cole

Produced by: Vernacular Blockchain

Ethereum, a crypto asset once circulated only in geek circles, is undergoing a profound transformation. It's transitioning from a simple cryptocurrency to a "global decentralized computer" sought after by investors worldwide. At the heart of this transformation lies a dramatic restructuring of Ethereum's stake distribution. It's no longer just a game for individual investors; traditional financial giants, publicly listed companies, and various institutions are rapidly entering the market, shaping a completely new landscape.

Currently, Ethereum is experiencing a massive migration of stakes, driven by both technological upgrades and the global financial environment. This isn't just a matter of numbers, but a fundamental shift in its intrinsic value and market narrative.

01. From "Wild Growth" to "Calculation" in the Token Economy

Since the birth of Ethereum in 2015, the economic model of its native token ETH has undergone tremendous changes, evolving from the initial simple and crude inflation model to today's dynamic and complex "elastic supply" mechanism.

Initially, Ethereum, like Bitcoin, employed a "Proof of Work" (PoW) mechanism. Miners expended significant amounts of electricity to mine, earning newly issued ETH as a reward. This led to a continuous increase in the ETH supply. Unlike Bitcoin's 21 million hard cap, Ethereum did not have a fixed cap in its early days, leading many investors to worry about its long-term inflationary risks.

However, the "Merge" upgrade in September 2022 marked the official departure of Ethereum from the energy-intensive PoW mechanism and the entry into the environmentally friendly and efficient Proof-of-Stake (PoS) era. Now, block verification no longer relies on a computing power competition, but is completed by validators who have staked ETH.

More importantly, long before the PoS upgrade, the Ethereum community introduced a key proposal called "EIP-1559." The core mechanism of this proposal is very ingenious: each transaction will have a base fee, which will be directly destroyed instead of being paid to the validator. This means that the supply of ETH no longer grows in a one-way linear manner. When the network is busy and transaction demand is high, the amount of ETH destroyed will increase significantly. When the amount of ETH destroyed exceeds the amount of ETH added through staking rewards, the total supply of ETH will experience a net decrease, creating a deflationary effect. This dynamic supply and demand balance directly links the scarcity of ETH to the actual usage of the network. The more prosperous and active a network is, the higher the amount of token destruction, which in turn increases its scarcity.

As of the latest data, Ethereum's circulating supply is approximately 120 million ETH. Its market capitalization is currently approximately $525 billion, ranking second in the global cryptocurrency market capitalization rankings, second only to Bitcoin.

This dynamic "elastic supply" model ensures that the value of ETH lies not only in its status as a native asset, but also in its utility as the fuel for the "global decentralized computer." This forms the underlying logic of its token distribution and makes it a unique investment target.

02. Ethereum Chip Distribution: The Game of Four Core Forces

To provide a clearer picture of Ethereum's stake distribution, the following table breaks down the amount of ETH controlled by each major holder and their percentage of the total supply. Currently, the circulating supply of Ethereum is approximately 120 million ETH.

 Ethereum's current chip structure

Ethereum's stake distribution isn't simply a ranking of address balances, but rather a complex system comprised of multiple functional sectors. Currently, stake is concentrated in four core areas: staking networks, DeFi protocols, centralized exchanges, and large institutional holders.

Pledge sector: the new dominant force in chips

With the completion of the Ethereum "merger," staking has become the most important component of ETH's stake distribution. Currently, the number of staked ETH tokens has reached 35.773 million, representing approximately 29.64% of the total circulating supply. The total market value of this staked ETH is approximately $160.26 billion, providing ETH holders with an annualized yield of approximately 1.89%.

However, the centralization of the staking market has sparked debate about the network's decentralization. Running a full Ethereum validator node requires a minimum stake of 32 ETH. This high capital requirement makes direct staking prohibitive for most retail investors. To address this issue, liquid staking protocols like Lido and centralized exchange staking services have emerged. These platforms pool user funds to meet the 32 ETH threshold and provide simplified staking services.

This convenience has led to a high concentration of ETH staking chips. Lido Finance, a leader in this field, has a total locked value of $37.5576 billion on the Ethereum chain, making it one of the most significant players in the ETH staking space. While ownership of these chips remains in the hands of individuals, this concentration of control does pose a potential risk to the long-term development of Ethereum.

DeFi Lock-up: The Cornerstone of Ecosystem Prosperity

Ethereum's stake distribution is also reflected in its thriving decentralized finance (DeFi) ecosystem. Total value locked (TVL) is a key metric for measuring the health of the DeFi ecosystem, representing the total value of assets locked in decentralized protocols.

Currently, the total locked value of DeFi on the Ethereum chain is approximately $89.0943 billion, accounting for the majority of the entire DeFi market. The ETH locked in DeFi protocols is no longer a simple static asset, but rather serves as a "means of production" for lending (such as MakerDAO), liquidity provision (such as Uniswap), and vaults. This mechanism endows ETH with new economic attributes, giving it a core role in the entire Web3 ecosystem. This locked-in value provides critical liquidity and services for the network and is a key indicator of the health and attractiveness of the Ethereum ecosystem.

Centralized Exchange Reserves: A Barometer of Market Sentiment

Ether reserves on centralized exchanges (CEXs) are a key indicator of short-term market sentiment and selling pressure. Significant outflows of ETH from exchanges typically indicate investors are transferring it to personal wallets for long-term holding or using it for staking and DeFi applications. These actions signal bullish sentiment and long-term accumulation.

Data shows that ETH outflows from centralized exchanges are at all-time highs. For example, between August 23 and 27, 2025, Binance's ETH reserves fell by approximately 10% in less than a week, from 4.975 million ETH to 4.478 million ETH. This sustained outflow trend indicates a shift in market structure from short-term speculation to long-term holding, which is a positive sign for ETH's price stability and future growth.

Large Institutional Holders: The Rise of the New “Whales”

The U.S. Securities and Exchange Commission (SEC) has approved nine issuers to launch spot Ethereum ETFs, including leading global asset managers like BlackRock, Grayscale, and Fidelity. This approval marks a defining moment in the financialization of Ethereum. It provides unprecedented and convenient access to Ethereum for traditional financial institutions (TradFi), transforming ETH from an asset primarily held by crypto-native investors into a widely accessible investment product.

BlackRock's speed and scale of entry are remarkable. According to relevant data, as of September 2, 2025, BlackRock, through its spot Ethereum ETF (ETHA), held over 3 million ETH, with a total value of approximately $12.9 billion. This holding represents approximately 2.5% of the global circulating supply, officially making it an Ethereum "whale." BlackRock's rapid accumulation demonstrates that the entry of traditional capital will have a profound impact on the distribution of ETH holdings.

In addition to traditional financial giants, some publicly listed companies have also adopted Ethereum as their core reserve asset. For example, cryptocurrency mining company BitMine has transitioned to a company using Ethereum as its core reserve asset. The company currently holds 1.86 million ETH, with a total value of approximately $8 billion, making it one of the world's largest corporate ETH holders.

03. Summary

At present, the distribution of Ethereum chips is forming a complex new pattern shaped by four forces.

First, the highly concentrated staking pools and vibrant DeFi ecosystem act like two massive reservoirs, locking up nearly half of the circulating supply of ETH and significantly reducing the amount of tradable tokens on the market. This locked-up ETH transforms from a simple "digital asset" into a "productive asset" capable of generating income, providing a solid foundation for Ethereum's long-term value.

At the same time, the continued shrinkage of reserves on centralized exchanges indicates that market sentiment is shifting from short-term speculation to long-term holding. Investors are no longer rushing to buy and sell on exchanges, but are instead transferring their assets to personal wallets or staking them for the long term, which is undoubtedly a positive sign of market maturity.

Finally, the accelerated entry of traditional financial giants and large whales through ETFs and over-the-counter (OTC) transactions is continuously consuming the already scarce free-floating chips in the market.

The combined effect of these multiple forces is creating a potential "supply shock," whereby less and less ETH is available for trading on the market, while demand continues to grow. This shift suggests that Ethereum's value will no longer be determined solely by technological innovation, but rather by its increasingly solid stake structure and growing institutional support.