Nearly 70% of institutional investors holding Ethereum (ETH) are engaged in staking, and 52.6% of them hold liquid staking tokens (LST), according to a report from Blockworks Research.
Nearly half of institutional investors who stake in ETH prefer to use only one integrated platform, such as Coinbase and Binance. Meanwhile, 60.6% of survey participants also use third-party staking platforms.
According to the report, one in five institutional investors surveyed had more than 60% of their portfolio allocated to Ethereum or an ETH-based LST. The investigation covered exchanges, custodians, investment companies, asset managers, wallet providers and banks.
The report found that the top features respondents considered when choosing a staking provider were reputation, range of supported networks, price, ease of integration, competitive costs, as well as as expertise and scalability.
Liquidity and security have also been considered the most important features for institutional investors when deciding whether staking is a viable option. On a scale of 1 to 10, liquidity scored an average importance of 8.5, reflecting concerns about exiting large LST positions if necessary.
At the same time, security scored even higher, with an average importance rating of 9.4, due to concerns about the effectiveness of withdrawals during volatile market conditions. Additionally, 61.1% of respondents indicated they would be willing to pay extra for improved security and fault tolerance.
Geographic location also plays a role, with half of institutional investors considering validator location important when choosing a staking platform.
Rise of Liquid Staking
The report also highlights that the rise of third-party staking platforms is driven by the growing popularity of LSTs. These tokens solve the initial issues with staking ETH when users lose their liquidity by locking it up to help keep the network secure.
Additionally, due to its popularity, various DeFi applications have started integrating LST into their services. This has significantly improved liquidity and is one of the main reasons why 52.6% of institutional investors hold LST, the report said.
The report notes that liquid staking is dominated by the Lido protocol and its LST, stETH, with 54.5% of respondents involved in liquid staking holding this token.
This concentration creates a dynamic in which large LSTs benefit from economies of scale. Greater market participation attracts more operators through higher fee opportunities, which improves security by spreading validation across more operators. However, it also raises concerns about the centralization of validation power in a few protocols – a problem reported by 78.4% of respondents.
Recovery and distributed validators
Reinvestment is another emerging trend, with a majority of investors expressing interest in the technology despite several concerns about additional risks.
Resttaking allows validators to simultaneously use ETH staked across multiple protocols and receive Liquid Restaking Tokens (LRT) for additional yield.
However, this introduces additional risks, such as slashing, a penalty that reduces the ETH staked by a validator for malicious behavior. The report also highlights risks such as protocol-level vulnerabilities and the possibility of increased centralization of validators.
Despite these concerns, 82.9% of respondents were aware of the risks associated with reinvestment, and 55.9% of institutional investors expressed interest in staking ETH, indicating a favorable outlook for reinvestment.
Institutional investors view centralization of validation power as a risky development, with 65.8% saying they are aware of distributed validation (DV) services.
