Ethereum will be upgraded in Shanghai on the 12th. Which websites can view key indicators in real time?

At 22:27 UTC on April 12, 2023, the Ethereum Execution Layer (EL) will undergo its 15th hard fork upgrade, the Shanghai upgrade. At the same time, the Ethereum Consensus Layer (CL), also known as the Beacon Chain, will undergo its third hard fork upgrade, called Capella. The Shanghai and Capella upgrades, sometimes collectively referred to as Shapella, will primarily activate withdrawals of staked ETH. While some other smaller code changes will be included in Shapella, these Ethereum Improvement Proposals (EIPs) are not expected to significantly impact or enhance the user experience.

The major code change for Shapella is EIP 4895, which adds a new system-level operation to support validator withdrawals. The addition of withdrawal functionality to the Ethereum codebase represents the final step in completing the network’s multi-year transition to a Proof-of-Stake (PoS) consensus protocol. Once Shapella is complete, validators will be able to withdraw their staking rewards from the beacon chain and unstake their 32 ETH principal balance. Already, over 1,500 validators have stopped validating on the beacon chain and are waiting to activate withdrawals to fully complete the exit process. Some of these validators have been waiting to withdraw their staked ETH balances for over two years.

Once the Shanghai upgrade is activated, the number of validators exiting the beacon chain may increase for a variety of reasons, including but not limited to:

• Home-based self-staking stakers who wish to exit the business and re-stake with a staking provider.

• Troubled cryptocurrency businesses such as Celsius sell staked assets to other businesses.

• Stakers who relied on service providers like Kraken to no longer operate staking services in the U.S. are looking to re-stake with other providers.

While some validators unstaked for various reasons after Shanghai was activated, after the withdrawal function was enabled, ETH holders had more confidence in the liquidity of their staked ETH positions, which could drive an influx of new validators.

In this report, we will discuss how to observe the Shanghai upgrade, which key metrics during and immediately after the upgrade will provide insights into its success and network activity, and which websites and data dashboards will provide insight into Ethereum network activity and health during the Shanghai upgrade .

Time

Unlike the previous Ethereum merge (“The Merge”), Shanghai will activate at a specific time on a specific date that has been predetermined in advance by Ethereum core developers. The reason developers can set the timing of the Shanghai upgrade down to milliseconds, rather than block estimates or setting a network difficulty threshold to activate the upgrade, is because of the way Ethereum’s new consensus layer (CL) works. The Beacon Chain advances by slots and epochs, not blocks. Blocks are not produced by a variable amount of computational energy. Validators that consume more energy are not more likely to “find” a block than other validators that consume less. Instead, validators are randomly selected and propose a block every 12 seconds. This fixed cadence for advancing the Ethereum blockchain makes upgrades very predictable. Developers now choose a slot number instead of a block number, and the timing of these slots is highly predictable.

The slot number for the Shanghai upgrade is 6209536. The slot will arrive on April 12, 2023 at 22:27:35 UTC. There are websites that count down to this exact time.

• A popular website used for Merge, called wenmerge.com , has been repurposed for Shanghai. The site estimates how much ETH rewards will become liquid as a result of the Shanghai upgrade, as well as the length of validator exit and entry queues.

• Likewise, there is a Dune data dashboard that counts down to the Shanghai upgrade. 21Shares Research’s dashboard (https://dune.com/21shares_research/shanghai-upgrade-coundown) provides a comprehensive overview of how much ETH is staked and by whom.

• Finally, CoinDataFlow has a countdown timer for the Shanghai upgrade, as well as more information about the upgrade and ETH price charts.

Network Health

After the Shanghai upgrade is activated, the metrics for evaluating the health of the network are the same as those highlighted in our previous merge report. That said, it is important to pay attention to network finality. Network finality on the beacon chain is reached once 2 epochs are confirmed by at least 2/3 of active validators. An epoch is a period of time lasting 6.4 minutes, where a maximum of 32 blocks can be proposed in 32 slots, with a block interval of 12 seconds. Missing slots indicate that a validator did not propose a block, which can have many reasons, the most common of which is due to client configuration errors or using outdated client versions.

During the activation of the Shanghai upgrade on the Goerli testnet in March, the network had difficulty completing due to several validators on Goerli not upgrading their software. Tim Beiko, chairman of the All Core Developers Execution Call, said at the time that the issue of non-upgraded nodes should not be a problem for the activation of the Shanghai upgrade on the mainnet because assets on Ethereum have real financial value, while assets on Goerli are almost worthless. Nevertheless, it is still worthwhile to monitor the network's readiness for the Shanghai upgrade by tracking node client versions. There are two websites that track node readiness.

• Ethernodes (https://ethernodes.org/client/geth): To check the readiness of your Ethereum node for the Shanghai upgrade, click on the website's "Clients" tab. Then click into the individual client types, such as "geth." A full breakdown of software versions running on Ethereum will then appear. The following screenshot shows that among nodes running the Geth client, about 25% of operators have successfully upgraded to version 1.11.5, which is ready for the Shanghai upgrade.

Ethereum node statistics as of April 5, 2023. Source: Ethernodes

• Metrika : To check the readiness of your Ethereum nodes for the Shanghai upgrade, click on the Network Upgrade tab. Navigate to the Network Readiness dashboard, which will indicate how many nodes are running software compatible with the current version of Ethereum, and how many are running software compatible with both the current version of Ethereum and the Shanghai upgrade. The former is called the “Compatible Client Version.” The latter is called the “Next Fork Version.” The following screenshot shows that as of April 4, 2023, approximately 40% of the nodes on Ethereum are ready for Shanghai.

As of April 5, 2023, the Ethereum node in Shanghai is ready. Source: Metrika

Network finalization is an important milestone for the network to reach after the Shanghai upgrade is activated, as it gives users, exchanges, dapps, and other network stakeholders confidence that the upgrade and blocks processed after the upgrade will be retained permanently and are unlikely to be permanently retained. A real-time view of epochs and slots processed on the beacon chain can be seen on block explorers such as beaconcha.in and beaconscan.com .

Below is a snapshot of the slot visualization page on the beaconcha.in website. On this page, you can see the epoch number, epoch status, and slot status.

Beacon chain slot visualization tool. Source: Beaconcha.in

Withdrawal activity

In addition to tracking network health, the most interesting type of network activity following the Shanghai upgrade is staked ETH withdrawal activity. Notable metrics around staked ETH withdrawals include:

• Total ETH withdrawn : Indicates how much ETH has become liquid and available for validators to move.

• Withdrawal Credential Changes : The number of validators that have successfully updated their withdrawal credentials and are therefore eligible for partial withdrawals (withdrawals of beacon chain issuance rewards, not withdrawals of staked ETH).

• Number of validators entering and exiting the queue : This is based on the churn limit, which is currently set to 8 validators per epoch, meaning that every 6.4 minutes, a maximum of 8 validators can enter and 8 validators can exit.

• Number of active and exiting validators : After entering the queue, validators will begin to receive rewards from the beacon chain, and after exiting the queue, validators will be able to withdraw their entire staked balance of 32 ETH. Tracking how quickly the number of active and exiting validators increases after Shanghai is a good metric for tracking changes in Ethereum security and issuance dynamics.

• Number of full and partial withdrawals : Another important metric to track following the Shanghai upgrade is the type of withdrawal activity that occurs. The number of full withdrawals should decrease over time, as the number of partial withdrawals should remain relatively stable.

There are several different websites that can track the above metrics in real time .

• Metrika https://app.metrika.co/ethereum/dashboard/withdrawals-overview?tr=1d

• Rated https://twitter.com/eliasimos/status/1643009798600904717?s=20

• Beaconcha.in https://beaconcha.in/validators/withdrawals

• Blockdaemon https://blockdaemon.com/shapella-fork/

Market Impact

In addition to network health and withdrawal activity, there are a few market indicators to watch before and after a hard fork:

1. ETH Price: As with Merge, and especially given Shapella’s focus on staked ETH withdrawals, all eyes will be on ETHUSD. As mentioned above, we examined potential selling pressure due to the upgrade in this report by exploring various scenarios of ETH percentage sold vs. total consensus layer rewards. If we conservatively estimate that validators will sell 50% of their staked ETH rewards (not the ETH they stake, but those newly minted ETH they receive from validating), we expect 553,650 ETH to be sold. Amortized over 7 days, this equates to approximately 1% of daily ETH trading volume (including spot and perpetual futures volume) over a week. Based on the broad risk environment and the overall liquidity of ETH expected during the Shanghai upgrade on Wednesday, April 12, we view this amount as ranging from insignificant to slightly bearish for ETHUSD. Another view is that a smooth Shanghai upgrade is generally bullish for Ethereum as a technology, and thus for ETHUSD.

A. ETH/BTC: Despite ETH's impending upgrade, BTC's outperformance so far this year has attracted much attention. We covered BTC's strong performance in a previous report, where we showed that BTC has benefited from the risk-off narrative so far this year, with the banking crisis sweeping the world and Bitcoin and gold rebounding. The ETH/BTC cross moved lower during 2023, ultimately bottoming out at 0.06274 in late March, just below 0.063, a level widely viewed as an important technical level. In recent weeks, as market concerns about the regional banking crisis have eased, ETH/BTC has jumped from the 0.63 support area and is trading above 0.067 as of this writing. This is in stark contrast to the 3-month timeframe prior to the consolidation, where ETH/BTC rose 60% from mid-June to mid-September 2022 (and subsequently traded lower after a strong rebound into the upgrade). We will be watching to see if ETH/BTC can maintain recent signs of strength both before and after the upgrade.

1. Volatility: As BTC has dominated the market's attention for much of the past month, ETH's implied volatility relative to BTC is trading near historical lows (chart). As ETH prices have begun to outperform BTC, ETH's volatility relative to BTC has also increased. We note that historically, this spread has exhibited sharp fluctuations around catalysts, as shown in the figure below, and will continue to observe whether the spread will continue to recover into events, which will be driven by ETH options demand.

Figure 4 eth-btc price difference

2. Liquid Staking Protocols : Liquid Staking protocol governance tokens such as Lido (LDO) and Rocketpool (RPL) have performed strongly so far this year, given the direct impact of the Shanghai upgrade on these protocols. Lido's LDO token is up 165% so far this year, while Rocketpool's RPL is up 132%. This reflects a similar pattern of liquidity staking outperformance witnessed in the merger, with LDO up +81% (compared to ETH's +28% gain) in the 3 months before the merger (July 1 to September 6).

3. Funding Rate : Given that the Shanghai upgrade will provide rewards and liquidity for staking ETH to validators, the event may affect the market interest rates for borrowing and lending ETH and liquidity-staking ETH tokens (such as Lido's stETH). Once withdrawals from Lido and other liquidity staking protocols are enabled after the hard fork, the difference in lending rates between ETH (currently 4.2% on Aave V3) and liquidity-staking ETH tokens (stETH is currently 0.44% on Aave V3) is expected to converge. This dynamic can be monitored on Aave V3 here (https://app.aave.com/markets/?marketName=proto_mainnet_v3).

Shanghai Upgrade Review

Finally, no Ethereum upgrade is complete without commentary from core developers, users, infrastructure providers, dapp developers, and other enthusiasts. To this end, there is a scheduled YouTube livestream (https://www.youtube.com/watch?v=nszB0ZZQrys) where you can virtually watch the upgrade with other Ethereumns organized by the EthStaker community. There are also several Ethereum Reddit communities whose active followers may discuss the upgrade. They are:

• r/ethereum https://www.reddit.com/r/ethereum/

• r/ethstaker https://www.reddit.com/r/ethstaker/

• r/ethtrader https://www.reddit.com/r/ethtrader/

Below is a Twitter list of accounts for several Ethereum core developers who may also tweet when the upgrade occurs.

• Ethereum Devs (https://twitter.com/i/lists/1565591397733785601 Twitter user @christine_dkim)

The official Discord channel for Ethereum core developers to communicate and coordinate the upgrade is here. The core developers will conduct a comprehensive post-mortem analysis of the Shanghai upgrade on their bi-weekly all core developers executive call the day after the upgrade on April 13. A live link to this call will be shared on this YouTube channel.

In addition to the short-term analysis, there will be several commentators discussing the medium- to long-term impact of staked ETH withdrawals on validators and the wider Ethereum ecosystem in the months and years following the activation of the Shanghai upgrade. Commentators include many of the companies already named in this report, but also include:

• Pintail https://pintail.xyz/

• Data Always https://dataalways.substack.com/

• Ethereum Foundation https://blog.ethereum.org/2022/12/05/merge-data-challenge-results

• Messari https://messari.io/research

• TheTie https://research.thetie.io/shanghai-effects-on-liquid-staking-derivatives/

And more!

in conclusion

As the Ethereum community prepares for another upgrade to introduce new network functionality, this time ETH withdrawals, it’s worth noting that Ethereum upgrades require a great deal of preparation and attention. As the protocol grows in value, code complexity, and ideally decentralization, upgrades will only become more of a burden for core developers. There are several different lenses through which to evaluate the upcoming Shanghai upgrade and its success. At the very least, it’s worth keeping an eye on Shanghai’s impact on network health, withdrawal activity, ETH price, and cryptocurrency market dynamics through the metrics and resources highlighted in this report.