In the world of Ethereum, the latest buzz surrounds a significant bottleneck in its validator exit queue, a situation that’s testing the resilience of its proof-of-stake (PoS) system. As of mid-September, around 2.5 million ETH, translating to a staggering $11.25 billion, is stuck awaiting exit. The bottleneck has stretched exit wait times to over 46 days, a record high in Ethereum’s staking history. Previously, in August, the wait time peaked at 18 days, highlighting the increasing challenges Ethereum faces.
The Catalyst: Kiln’s Strategic Withdrawal
The turmoil began on September 9 when Kiln, a major infrastructure provider, decided to pull out all its validators as a precautionary measure following security breaches, including an NPM supply-chain attack and the SwissBorg breach. This move added approximately 1.6 million ETH to the queue, significantly contributing to the backlog. While these incidents are not directly linked to Ethereum’s staking protocol, they remind us of how interconnected the crypto ecosystem is. Such events can ripple through systems, affecting not just the parties involved but the broader network dynamics.
In a blog post by Figment, Senior Analyst Benjamin Thalman offered a broader perspective, suggesting that the queue isn’t solely driven by security concerns. Ethereum has seen a price surge of over 160% since April, prompting some stakers to cash out. Moreover, institutional investors are rebalancing their portfolios, which adds to the flux.
The Role of Ethereum’s Churn Limit
Ethereum’s churn limit, designed as a safeguard to regulate the entry and exit of validators, currently caps at 256 ETH per epoch (about 6.4 minutes). This limitation, while maintaining network stability, also inadvertently slows down the process, causing significant delays. With over 2.5 million ETH queued, stakers as of September 16 face a daunting 44-day wait just to reach the cooldown phase.
Layer 2 Solutions: A Double-Edged Sword?
While Ethereum grapples with these challenges, its DeFi landscape is undergoing a transformation. Layer 2 (L2) networks like Arbitrum and Base are gaining traction, boasting $20 billion and $15 billion in total value locked (TVL), respectively. This shift raises questions about Ethereum’s future as a layer 1 (L1) blockchain. Is L2 adoption cannibalizing Ethereum’s DeFi activity, or is the network evolving into a multi-layered financial ecosystem?
AJ Warner, Offchain Labs’ Chief Strategy Officer, argues that Ethereum is becoming the “global settlement layer” for high-value transactions, a role not fully captured by current DeFi metrics. Layer 1 serves as a secure but slower base, while L2s offer faster, cheaper transactions, appealing to developers and traders alike.
Ethereum Foundation’s AI Ambitions
In a bid to stay ahead, the Ethereum Foundation (EF) is setting up a new AI team to position Ethereum as the coordination layer for the “machine economy.” Research scientist Davide Crapis announced the initiative, which aims to let AI agents operate without intermediaries and build a decentralized AI stack. By leveraging Ethereum’s neutrality and verifiability, the foundation seeks to create a base layer for intelligent systems.
American Express’ Blockchain Experiment
In a surprising twist, traditional finance giant American Express is venturing into blockchain with Ethereum-based “travel stamps.” These non-tradable NFTs, stored on Coinbase’s Base network, offer a novel way for travelers to commemorate their experiences. Colin Marlowe, vice president of Emerging Partnerships at Amex Digital Labs, emphasized that these stamps are about enhancing the travel experience, not generating revenue.
Broader Implications and Future Outlook
The current validator queue bottleneck underscores the growing pains of Ethereum’s PoS system as it scales. While the network’s churn limit is a necessary check for stability, it also poses challenges as more validators enter the ecosystem. Meanwhile, the rise of L2 solutions and Ethereum’s evolving role as a settlement layer highlight the network’s adaptability and potential for innovation.
As Ethereum navigates these complexities, the crypto world watches closely. The interplay between security, scalability, and innovation continues to shape its path. Whether through strategic exits by players like Kiln or the burgeoning promise of L2 networks, Ethereum’s journey is a testament to the dynamic and ever-evolving nature of blockchain technology.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
