Celsius Network, a now-defunct crypto lender, has sparked controversy with its recent changes to its ETH staking strategy, exacerbating the already lengthy queue to activate new validators on the Ethereum network. The company’s transfers of ETH into staking contracts have contributed to the congestion, causing delays for new validators seeking to participate on the network.

Over a span of two days, Celsius Network transferred ETH into staking contracts after redeeming approximately $813 million worth of staked ETH from Lido Finance. According to data provided by Arkham Intelligence, the company has deposited $745 million of ETH since early June. These actions have put additional strain on the already extended queue to establish new validators on the Ethereum network.

The Ethereum network relies on validators to ensure its security and process transactions. Validators play a crucial role in proof-of-stake blockchains by staking their cryptocurrency as collateral, overseeing transactions, and adding new blocks to the blockchain. In return for their services, validators earn rewards in the form of additional cryptocurrency.

Tom Wan, an analyst at crypto investment product manager 21Shares, highlighted the impact of Celsius Network’s transfers on the activation queue. He stated that if Celsius were to stake all the 428,000 ETH, it would take an additional 45 days and 4 hours to clear the entire queue, adding approximately 6 days and 15 hours to the waiting period.

As a result of Celsius Network’s actions, the elongated queue to establish new validators on the Ethereum network currently stands at 44 days, with the company potentially responsible for almost an additional week of delay. These recent transactions come amidst Celsius Network’s ongoing restructuring process following its filing for bankruptcy protection in July and subsequent sale to Fahrenheit, an investment group backed by Arrington Capital.

Previously, Celsius Network had staked around 460,000 ETH, valued at $870 million, with Lido Finance, while approximately 160,000 tokens, equivalent to about $300 million at current prices, were deployed in its own staking pool. The recent transfers indicate the lender’s effort to reorganize its staked ETH holdings since Ethereum’s Shanghai upgrade enabled withdrawals from staking contracts in April.

Celsius Network’s actions have had implications for the Ethereum network, especially the already crowded queue of individuals attempting to add new validators. Validators play a crucial role in proof-of-stake blockchains by ensuring network security and overseeing transactions in exchange for rewards through token staking. The demand for staking has surged following the implementation of the Shanghai upgrade, which allowed withdrawals of ETH staked in the Beacon Chain. As a result, deposits have increased significantly, leaving new entrants waiting for up to a month to set up their validators, according to data from blockchain intelligence firm Nansen.

Celsius Network’s collapse in the summer of 2022, amidst a market downturn in cryptoasset prices, was partly attributed to its inability to withdraw staked ETH from providers like Lido Finance, as depositors rushed to withdraw their funds from the platform.

The impact of Celsius Network’s ETH staking strategy on the Ethereum network highlights the challenges associated with congestion and the need for efficient management of validator activations. As the network evolves, finding solutions to mitigate such congestion and optimize the validator onboarding process will be crucial for maintaining a smooth and efficient Ethereum ecosystem. It is important for stakeholders, including cryptocurrency platforms and developers, to collaborate and implement measures that alleviate the strain on the network, such as improving the validator activation process and optimizing resource allocation. By addressing these challenges, Ethereum can continue to grow and meet the increasing demand for its services, ultimately enhancing its scalability and usability.