Crypto Staking's $1.4B Blow: Institutions Cautious After Bybit Hack

Bybit's recent $1.4 billion hack, orchestrated by the Lazarus Group, has dealt a significant blow to the institutional adoption of crypto staking, particularly for liquid staked Ether (STETH). The incident has raised concerns among institutional investors, who are now more cautious about allocating funds to crypto assets, including staked ETH.

Bohdan Opryshko, the chief operating officer of staking services provider Everstake, believes that high-profile cybersecurity breaches like this one can deter institutional investors from entering the crypto staking market. He suggests that potential investors and auditors may hesitate to allocate funds to assets associated with such large-scale hacks, as it raises legal and compliance concerns.

The Bybit hack may also accelerate the ongoing trend of stakers moving away from centralized crypto exchanges (CEXs). In the past six months, the amount of staked ETH on CEXs has declined by nearly 7%, from 8.6 million ETH in September to 8 million ETH in February. This figure dropped by an additional 0.5% immediately following the Bybit hack. Users are increasingly withdrawing their staked assets from CEXs, potentially moving them to non-custodial staking solutions or hardware wallets for better security.

Despite the setback, institutional interest in staking, particularly for Ether (ETH), remains strong. In the US, Ether exchange-traded funds (ETFs) do not currently permit staking, but the US Securities and Exchange Commission has acknowledged requests from issuers such as 21Shares to start staking a portion of their ETF holdings. In Europe, staking is already permitted for Ether ETFs, and analysts expect regulators to soon allow staking by US ETFs as well.

As of February 27, Ether ETFs had drawn nearly $3 billion in net inflows since their launch in July. While they still lag behind Bitcoin (BTC) ETFs, which have seen more than $37 billion in net inflows since January 2024, the institutional interest in staking is evident. Staking involves locking up ETH as collateral with a validator on the Ethereum blockchain network, allowing stakers to earn ETH payouts from network fees and other rewards, while also risking "slashing" if the validator misbehaves.

Other