Ethereum Exit Queue Surges to Over 2.5 Million ETH Amid Kiln's Precautionary Validator Withdrawal

The Ethereum network's validator exit queue has swelled to unprecedented levels, surpassing 2.5 million ETH, following a precautionary withdrawal initiated by major staking provider Kiln. The move, which saw Kiln exit approximately 1.6 million ETH across 51,000 validators, was a direct response to a security breach involving its API that led to a significant exploit on SwissBorg's staked Solana holdings. This has pushed estimated exit wait times to over 45 days, marking the longest queue in Ethereum's staking history.

Kiln's decision to exit its Ethereum validators stemmed from an incident where an API vulnerability was exploited, resulting in the unauthorized withdrawal of roughly 193,000 SOL, valued at over $40 million, from SwissBorg's Earn product. While the breach directly impacted Solana assets, Kiln stated that the exit of its Ethereum validators was an "orderly" and "precautionary measure designed to ensure the continued integrity of the staked assets," clarifying that no ETH funds were lost in the incident itself.

The mass withdrawal by Kiln significantly contributed to the surge in the Ethereum exit queue, which now holds a total of 2.6 million ETH awaiting unstaking. Ethereum's protocol incorporates a "churn limit," a safeguard that restricts the number of validators that can enter or exit the network within a specific timeframe, ensuring network stability even during large-scale movements like this.

Industry experts have weighed in on the situation, with Ethereum educator Anthony Sassano noting that the majority of the unstaked ETH is expected to be restaked under new validator keys. Benjamin Thalman, a Senior Analyst at Figment, echoed this sentiment, suggesting that the event is more of a "security reset" for Kiln rather than a widespread sell-off of Ethereum. This perspective aims to alleviate concerns about potential market pressure from such a large amount of ETH becoming liquid.

Kiln has communicated that the exit process for its validators is anticipated to take between 10 and 42 days, with an additional period of up to nine days for withdrawals to be fully processed. Validators continue to accrue rewards while in the exit queue. The company has also temporarily suspended certain services as it conducts a full internal review and strengthens its infrastructure, with a post-mortem expected upon completion of the investigation.