Ethereum’s exchange balances have hit their lowest point since July 2016, with a dramatic 6.7% decline seen so far in Q3 2021, according to The DeFi Report. This shift points towards a growing trend of decentralized finance (DeFi) strategies driving users away from traditional centralized exchanges. The decline is attributed to the rising popularity of yield-generating on-chain strategies employed by institutional investors and treasury programs. Michael Nadeau, Founder of The DeFi Report, highlighted this trend as an ‘ETH supply shock,’ suggesting a significant move toward self-custody solutions instead of relying on traditional exchanges for storage. The implications for the Ethereum market are substantial: limited liquidity could ultimately tighten the supply of ETH, potentially driving prices up when demand increases. This ‘reflexivity effect’ could trigger a cascade of activity across the market, mirroring previous historical patterns where a similar shift towards on-chain strategies coincided with declining CEX balances.