The Ethereum blockchain validator queue has emptied for the first time since the Shanghai upgrade in May, a signal investor demand for ether (ETH) staking is leveling off, Coinbase (COIN) said in a research report Friday.

Validators verify transactions by locking up ether in exchange for rewards. The blockchain’s Shanghai upgrade allowed for the withdrawal of staked ether for the first time.

With the validator entry at peak capacity in recent months, staking yields have dropped to 3.5% from more than 5%, the report said.

“The yield on staked ether provides a floor for the crypto ecosystem,” wrote analysts David Duong and David Han, “providing a benchmark for alternative crypto investments.”

If underlying activity and transaction fees remain consistent on the network, Coinbase says it expects the staking yield to remain flat now that validator growth has slowed.

Activity on the Ethereum mainnet held steady during the third quarter, while its total rollup transactions increased, the note said.

“With no major Ethereum protocol upgrades until Dencun, which is likely to occur in the first half of 2024, we see no major technical drivers that would meaningfully impact onchain activity – barring major new protocols or egregious hacks,” the report added.

The Dencun upgrade includes five Ethereum Improvement Proposals (EIPs) that are designed to add more storage for data and reduce fees on the blockchain.

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Will Canny

Will Canny is an experienced market reporter with a demonstrated history of working in the financial services industry. He's now covering the crypto beat as a finance reporter at CoinDesk. He owns more than $1,000 of SOL.