Recently, Ethereum witnessed a rare unstaking wave in its history, with over 900,000 Ethereum queued for exit, waiting to be unlocked. The maximum waiting time for unlocking reached 16 days. Meanwhile, after hitting a high of $4,789, Ethereum's price has been falling for nearly a week, dropping to just over $4,000 at its lowest point.

Did the large queue of Ethereum waiting to be unlocked cause market concerns, thereby triggering Ethereum's decline? Why is such a massive amount of capital eager to exit? What market logic lies behind this?

The Chain Reaction of 900,000 ETH Queued for Unstaking

To understand this unstaking wave, one must first understand Ethereum's Proof-of-Stake (PoS) mechanism. Since Ethereum transitioned to the "PoS" mechanism, validators can participate in block production and transaction validation by staking at least 32 ETH. In return, stakers receive an annualized yield of approximately 2%–4%.

Unlike traditional financial markets, Ethereum's staking mechanism is not freely enterable and exitable at any time. To maintain network stability, the Ethereum protocol sets exit limits: only a limited number of validators are allowed to exit per epoch (approximately 6.4 minutes) at any given time. This mechanism ensures that network security does not plummet due to large-scale redemptions in a short period. However, it also means that when exit demands erupt concentratedly, a "queuing phenomenon" lasting over ten days, as seen now, occurs.

The most direct trigger for this unlocking wave actually originated from decentralized finance (DeFi) lending protocols, particularly the abnormal surge in ETH borrowing rates on the Aave platform.

An article by Galaxy Research pointed out that starting on July 14th, the ETH borrowing rate on the Aave protocol began to surge periodically. Although the borrowing rate typically ranges between 2% and 3%, on July 16th, 18th, and 21st, the rate soared to 18%.

This volatility was caused by a sharp decrease in the supply of ETH on the Aave platform, which itself was triggered by a wallet associated with the HTX exchange making large withdrawals from the platform. Since June 18th, this wallet has withdrawn over 167,000 ETH. The sudden reduction in ETH deposits put pressure on users employing ETH loop strategies on Aave and also led to a surge in some redemption requests.

Under Aave's algorithmic interest rate model, the interest rate automatically spikes when borrowing demand far exceeds the available supply for loans.

This drastic change in interest rates directly destroyed the "ETH loop leverage" strategy widely used by many investors. When the borrowing cost (18%) far exceeded the Ethereum staking yield (approx. 2.9%), this strategy was no longer a profit amplifier but became a loss machine. Faced with sharply rising funding costs, a large number of traders and institutions using such strategies were forced to "deleverage," with the only option being to unlock their staked ETH to repay high-interest loans. This forced and large-scale unwinding behavior constitutes the main body of this exit queue.

Unstaking ≠ Selling, This is Not a Crisis but a Sign of Ethereum's Maturity

However, it is true that some large holders are taking profits. Prior to this, ETH's price experienced a strong rally, nearly reaching a new all-time high, and many early stakers locked in substantial gains from their assets. Choosing to exit near the price peak, unlocking the staked ETH, and selling it on the secondary market is a classic move to lock in profits and realize investment returns. Therefore, a significant portion of the ETH in the exit queue comes from these long-term investors.

The concentrated unwinding of leverage strategies triggered a chain reaction in the market, creating an entry opportunity for a third force – arbitrageurs.

When a large number of users rushed to sell liquid staking tokens (such as Lido's stETH) to repay loans, a temporary "decoupling" occurred between their price and the underlying asset ETH, providing an opportunity for keen arbitrageurs. They bought large amounts of liquid staking tokens at a discount and then redeemed these tokens for ETH at a 1:1 ratio through official channels, thereby earning risk-free profits. This arbitrage activity undoubtedly further increased the length and scale of the exit queue.

But it is worth emphasizing that although the current Ethereum price has fallen due to potential selling pressure, this unlocking wave is not a crisis signal. On the contrary, it precisely proves the strong resilience of Ethereum's PoS mechanism and ecosystem. Market participants are acting based on clear economic signals, not panic. Ethereum's exit mechanism is operating smoothly as designed, orderly handling an unprecedented volume of requests.

This indicates that this is not a crisis, but rather powerful proof of Ethereum's maturation as a decentralized financial economy. The Galaxy Research article also pointed out that despite the large-scale withdrawals, new staking demand remains strong, almost offsetting the impact of the withdrawals. This shows that the market remains confident in Ethereum's long-term prospects.