DeFi's Attractive Returns Pull Funds Away from Ethereum Staking Pools

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Proof-of-Stake (PoS) blockchain is currently facing a notable wave of withdrawals, with 2.369 million ETH—worth around $10.2 billion—waiting in the exit queue as of September 2025. This marks a clear net outflow of staked coins, prompted by falling staking rewards and a strategic move of funds toward more lucrative options, particularly in decentralized finance (DeFi). Data from Validatorqueue shows the exit queue has expanded about 327% from the previous week, while the queue for new validators has shrunk to 320,000 , indicating a clear dominance of withdrawals AMBCrypto [ 1 ].

This spike is in part due to the annual staking yield dropping below 3%, now at 2.84%—the lowest since Ethereum switched to PoS in 2022 AMBCrypto [ 1 ]. Lower returns have encouraged validators to move their assets into DeFi protocols that offer better yields. For example, Pendle’s stETH pools currently provide a 5.4% APR, drawing liquidity away from the staking ecosystem. It’s estimated that about 40% of the exit queue is destined for DeFi platforms, showing a strategic shift rather than simple selling AMBCrypto [ 1 ].

A major factor behind the surge is the 1.6 million ETH withdrawal by staking service Kiln following the July 2025 SwissBorg breach. This makes up nearly 61% of the current exit queue, highlighting the substantial influence of this event on liquidity flows AMBCrypto [ 1 ]. Experts point out these withdrawals are largely “rotational,” meaning assets are being temporarily shifted to other opportunities rather than exiting the network entirely AMBCrypto [ 1 ].

The spike in withdrawals has resulted in an average 43-day wait time to process exits, with an extra 9.1 days required for funds to reach their withdrawal addresses AMBCrypto [ 1 ]. This backlog demonstrates the network’s limited ability to handle mass exits in a short period, an issue recognized since the Merge. While there are no immediate plans from Ethereum’s developers to resolve these congestion points, these delays are expected to lessen as validator activity normalizes Blockchair [ 4 ].

This wave of withdrawals has reduced Ethereum’s Total Value Staked (TVS) to 36 million ETH, reflecting a weekly decrease of 150,000 ETH AMBCrypto [ 1 ]. At the same time, Ethereum’s DeFi protocols have locked a record $97 billion in assets, highlighting a migration from staking to higher-yield DeFi opportunities AMBCrypto [ 1 ]. This trend demonstrates both the growing sophistication of the DeFi landscape and its competitiveness with traditional staking incentives.

Despite these liquidity challenges, the Ethereum network remains robust and no systemic risks have been flagged. Andy Cronk from Figment, a staking provider, attributes the current exit activity to typical market cycles and profit-taking during uptrends, rather than a loss of faith in the PoS mechanism COINOTAG [ 5 ]. Still, if withdrawal delays persist and staking rewards stay low, validator patience could be tested.

This situation has caught the eye of institutional investors and corporate treasuries, who are increasingly viewing Ethereum as a key asset. For instance,

Immersion, a prominent treasury management company, has amassed 1.52 million ETH—worth $6.6 billion—demonstrating ongoing institutional interest. These trends indicate that, despite temporary liquidity hurdles, Ethereum’s status as a leading blockchain remains secure.