Institutional Investors Flock to Ethereum Staking, With Nearly 70% Holding ETH or an ETH-based LST

Nearly 70% of institutional investors holding Ethereum (ETH) are engaged in staking, with 52.6% of them holding liquid staking tokens (LSTs)

Institutional investors are increasingly engaging in ETH staking, with a preference for using integrated platforms and a high demand for liquidity and security. A significant number of these investors also hold liquid staking tokens (LSTs).

Institutions are showing a strong interest in using multiple staking platforms, with nearly two out of three (60.6%) respondents utilizing third-party staking services in addition to exchanges. This multi-platform approach is driven by the varying strengths and offerings of different staking providers.

When choosing a staking platform, institutional investors prioritize reputation, supported networks, price, simple onboarding, competitive costs, and expertise and scalability. Among the respondents, nearly half (49.4%) prefer to use only one integrated platform, such as Coinbase or Binance, for all their ETH staking activities.

According to the Blockworks Research report, liquidity and security are the most crucial factors for institutional investors when considering whether staking is a viable option. On a scale of 1 to 10, liquidity scored an average importance of 8.5, highlighting concerns about exiting large LST positions if necessary.

Meanwhile, security scored even higher, with an average importance rating of 9.4, driven by worries over withdrawal efficiency in volatile market conditions. Additionally, 61.1% of respondents indicated they would be willing to pay a premium for enhanced security and fault tolerance.

Interestingly, geographic location also plays a role in platform selection, with half of institutional investors considering a validator’s location when choosing a staking platform. This preference could stem from concerns about regulatory oversight or network latency.

The report also highlights the rise of third-party staking platforms, which is largely driven by the increasing popularity of LSTs. These tokens address the initial issues with ETH staking where users lose their liquidity by locking it to help with network security.

Due to their popularity, various decentralized finance (DeFi) applications have started integrating LST in their services. This has significantly improved liquidity and is one of the key reasons behind 52.6% of institutional investors holding LSTs, according to the report.

The report noted that liquid staking is dominated by Lido Protocol and its LST, stETH, with 54.5% of respondents involved in liquid staking holding this token. This concentration creates a dynamic where large LSTs benefit from economies of scale.

Greater market participation attracts more operators through higher fee opportunities, which in turn improves security by distributing validation across more operators. However, it also leads to concerns about centralizing validation power in a few protocols — an issue flagged by 78.4% of respondents.

Restaking is another emerging trend, with a majority of investors expressing interest in the technology despite several concerns around added risks. Several protocols have emerged to enable restaking, allowing validators to use staked ETH across multiple protocols simultaneously and receive liquid restaking tokens (LRTs) to capture additional yield.

However, it introduces added risks, such as slashing — a penalty that reduces a validator’s staked ETH for malicious behavior. The report also pointed to risks like protocol-level vulnerabilities and the potential for further centralization of validators.

Despite these concerns, 82.9% of respondents were aware of the risks associated with restaking, and 55.9% of institutional investors expressed interest in staking ETH, indicating a favorable outlook for restaking.

Finally, institutional investors view validation power centralization as a risky development, with 65.8% saying they were aware of distributed validator (DV) services. These services aim to mitigate centralization by aggregating and distributing validator keys across multiple parties.

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