When 8 Million ETH Start to "Move": A Structural Change in Staking After the Pectra Era?

In addition to the improvement in APR, the more critical aspect is a reconfiguration of the validator structure, capital efficiency, and staking service model.

Written by: imToken

Recently, there has been a significant news story overlooked by the market: Lido is "moving" over 8 million ETH (approximately $16 billion).

Of course, this is not about transferring funds from Lido to another new protocol, but rather about gradually migrating hundreds of thousands of traditional validators supporting stETH into a new validator architecture launched after the Pectra upgrade.

According to Lido's plan, over 265,000 validators using the old 0x01 withdrawal credential will be merged into fewer validators with higher balances, and after the migration is complete, the total number of validators on the Ethereum network is expected to decrease from about 880,000 to approximately 628,000, a reduction of nearly one-third. The number of proof messages that need to be propagated per epoch may also decrease by about 29%.

This will not directly lower the gas fees paid by ordinary users, nor will it suddenly accelerate transaction confirmation speeds. In fact, to complete the migration, Lido estimates that the temporary reward loss from the migration will be approximately equivalent to 0.28% of the protocol's annual staking rewards.

So, since the increase in returns is limited and the migration itself has costs, why is Lido still pushing for this "move" worth over a hundred billion dollars?

The answer lies in an important change brought by the Pectra upgrade in May 2025—compound validators.

1. What Exactly is Lido "Moving" with 8 Million ETH?

On May 7, 2025, the Pectra upgrade officially launched on the Ethereum mainnet.

Among them, EIP-7251 raises the maximum effective balance of a single validator from 32 ETH to 2048 ETH and introduces withdrawal credentials starting with "0x02". Validators using the new credentials can keep the consensus layer rewards in the beacon chain balance, gradually increasing their effective balance and generating new returns, hence they are also referred to as "compound validators".

On the surface, this merely writes "automatic reinvestment of rewards" into the protocol, but the deeper change is that it breaks the long-standing fixed structure of 32 ETH for Ethereum validators.

As is well known, the effective balance cap for Ethereum validators has always been fixed at 32 ETH. Regardless of whether it grows to 33 ETH or higher, the effective balance that truly participates in consensus reward calculations remains capped at 32 ETH. Any excess is periodically transferred to the execution layer withdrawal address.

For individual stakers running only one or a few validators, to continue participating in native staking rewards, they must accumulate scattered rewards from different validators to reach 32 ETH again. The reinvestment threshold is high, and small balances are often left outside the staking system due to being transferred to the withdrawal address.

At the same time, for Lido, large exchanges, and professional staking service providers, while they can aggregate the scattered rewards generated by a large number of users to quickly reach a new 32 ETH, they also face another cost—every additional 32 ETH typically requires the creation and maintenance of a new validator.

As Ethereum staking scales continue to grow, the number of validators also expands, leading to increased indexing, keys, signatures, and proof messages, which in turn raises operational maintenance costs.

EIP-7251 introduced by Pectra aims to change this structure.

In the new 0x02 model, the minimum threshold for launching a validator remains 32 ETH, but the maximum effective balance of a single validator has been raised to 2048 ETH. This means that rewards no longer need to be automatically withdrawn but can remain in the validator, continuing to increase the effective balance and generate new returns.

At the same time, multiple existing validators can be merged. For example, 2048 ETH originally scattered across 64 validators can be consolidated into a high-balance validator, with no change in total staking weight, but a significant reduction in the number of validators, keys, and network messages that need to be maintained (for further reading, see "A Year Later, 'Lean Ethereum' Re-Launches: What Does Ethereum Want to Deliver?").

Ultimately, funds do not exit Ethereum, and the economic security provided does not decrease, but the operational burden is significantly reduced.

What Lido is promoting is this kind of merging.

So, strictly speaking, the "compound" in compound validators actually explains only half of its value; the other half lies in the fact that validators can finally be reconfigured from numerous standardized 32 ETH small units into a more streamlined infrastructure suitable for large-scale operations.

2. What Kind of Yield Improvement Can Be Expected?

Interestingly, from the perspective of returns, the improvements brought by compounding are not evenly distributed.

Theoretically, both individual stakers and large institutions can use 0x02 to reduce idle balances, allowing rewards to participate more directly in subsequent staking. However, due to the varying capital management capabilities of different participants, the marginal benefits brought by the upgrade are not the same.

A paper published in June 2026, titled "When Staking Rewards Compound: Measuring the Impact of Ethereum's Pectra Upgrade," compared the yield performance of 0x01 and 0x02 validators.

Simulation results show that in the balance range from 32 ETH to 2048 ETH, the consensus layer APR for 0x01 validators averages about 2.17%, while for 0x02 validators, it is about 2.26%, representing a relative improvement of about 4.7%. However, when the staking scale reaches 8192 ETH to 10240 ETH, the relative difference between the two narrows to about 0.3%.

It is particularly important to note that the "approximately 4.7%" mentioned in the paper does not mean an increase of 4.7 percentage points in APR; it refers to a relative improvement of about 4.7% on the original consensus layer APR of approximately 2% to 3%.

The reason why smaller-scale stakers see more significant improvements is not that they have some exclusive returns, but because they previously found it more challenging to reinvest.

For example, a user with only one 32 ETH validator has their rewards automatically transferred to the withdrawal address and needs to accumulate for a long time or combine with other funds to reach 32 ETH again to start another validator. The portion that is less than 32 ETH is still scattered across different addresses, making the willingness to aggregate naturally low.

However, 0x02 validators allow these funds to continue increasing effective balances within the same validator, thereby reducing the idle funds formed by "less than 32 ETH". Ultimately, what small-scale stakers have lacked in the past is not only the willingness to reinvest but also the ability to reinvest scattered ETH back into native staking.

Large staking service providers can also benefit from native compounding, but they already have stronger capital aggregation capabilities, allowing them to quickly gather new 32 ETH and start the next validator. From the perspective of the entire capital pool, they can achieve a capital allocation effect close to compounding.

Thus, the larger the staking scale, the lower the proportion of scattered balances to total capital, and naturally, the marginal improvements brought by 0x02 are also smaller.

However, this does not mean that 0x02 is unimportant for large institutions.

On the contrary, the core issue faced by large institutions is shifting from "how to continue generating returns from rewards" to "how to manage more ETH with fewer validators."

For them, the value of 0x02 is more reflected in two aspects: on one hand, rewards can remain in the validator for continued compounding, reducing the need for frequent aggregation, redepositing, and creating validators; on the other hand, a large number of existing 32 ETH validators can be merged, significantly lowering the management costs of nodes, keys, and consensus layer messages.

Of course, this change will also bring new trade-offs.

Traditional 0x01 validators automatically transfer rewards exceeding 32 ETH to the withdrawal address without requiring proactive on-chain operations; 0x02, on the other hand, defaults to keeping rewards in the validator. If large service providers want to meet user redemption or manage liquidity, they need to proactively initiate partial withdrawals and redesign accounting, reward distribution, and capital buffer mechanisms.

Therefore, for small-scale stakers, the most direct value of 0x02 is to lower the reinvestment threshold and reduce idle funds; for large institutions, although the yield improvement is smaller, the merging of validators and improvements in infrastructure efficiency are even more important.

Both benefit from the same mechanism, but the sources and priorities of the benefits differ.

3. The Changes and Constants in the Ethereum Staking Ecosystem

So if we only look at APR, we find that Lido's migration does not seem like a particularly enticing business.

After all, the yield improvement obtained by large service providers through compounding may be less than 1%, and there will be temporary reward losses during the migration process, while the existing accounting, withdrawal, and liquidity management systems will also need to be adjusted.

However, Lido still decided to push for this largest core architecture upgrade since V2 in 2023. This is because when the funds managed by the protocol reach over 8 million ETH, the number of validators itself begins to become a cost.

Especially after the Pectra upgrade, a 2048 ETH validator can carry the staking weight equivalent to 64 traditional validators, which means more efficient management of more capital with fewer validators.

In fact, Lido's upgrade is not just about merging validators.

After migrating to Curated Module v2, its professional node operators will need to lock ETH as collateral for the first time. If there are operational interruptions, penalties, reward mismatches, or other attributable issues, the collateral can be used to cover losses.

In the past, Lido's selected node operators primarily relied on historical performance and reputation to gain trust. Now, while reputation is still retained, an additional layer of real capital constraints has been added. The existing 34 selected node operators are expected to migrate to CMv2 and have not chosen to exit due to the collateral requirement.

This change may be more noteworthy than compounding itself, and it signifies that the competitive standards for staking after Pectra are undergoing structural changes, making future differences between staking services more likely to reflect how to improve effective capital utilization, manage withdrawals and liquidity, allocate validator risks, and achieve a balance between asset control, operational complexity, and returns.

For user entry points like wallets, the value is no longer just about displaying a yield number to users; it also needs to help users understand the funding paths and risk structures behind different staking methods.

As compound validators gradually become mainstream, the content that these entry points need to present will also increase, such as whether rewards are automatically reinvested, when rewards can be withdrawn, which withdrawal credentials the validators use, who controls the funds, and what technical and liquidity risks different schemes need to bear.

This also means that wallets are no longer just connecting to a staking yield page but to a group of increasingly differentiated validator services.

In Conclusion

Overall, from The Merge to the Shanghai upgrade, and then to the Pectra upgrade, Ethereum is gradually completing the lifecycle of staking.

The Merge made validators the core of network security, the Shanghai upgrade solved the issue of how to exit staked funds, and the Pectra upgrade begins to further optimize how funds enter, accumulate, and reorganize.

Of course, compound validators will not allow all participants to achieve the same degree of yield improvement:

• For small-scale stakers, it can reduce idle balances, allowing long-held ETH to participate more fully in consensus;
• For large institutions, its more important value may not be to increase APR but to reduce the number of validators and lower operational burdens.

Therefore, the migration of 0x02 validators is destined to be gradual, with different participants choosing to either retain their original validators or gradually shift to the compounding model based on their capital scale, liquidity needs, and operational structure.

However, the way Ethereum organizes staking capital is undergoing structural changes step by step, especially as validators are no longer fixed at 32 ETH, the staking ecosystem is beginning to shift from standardized yield products to more segmented capital management and infrastructure competition.

This is also a paradigm shift in Ethereum staking worth tracking in the long term.