Opinion: About 59% of illiquid ETH may be withdrawn after Shapella upgrade

Viewpoint

Global Views

The Ethereum Foundation has officially announced that it will launch the highly anticipated Shapella upgrade (including the "Shanghai upgrade" of the execution layer and the "Capella upgrade" of the consensus layer) at 22:27:35 on April 12, 2023 (UTC time).

The main goal of the Shapella upgrade is to further improve the scalability of the Ethereum network and reduce the cost of network operations. In addition, after the upgrade is completed, validators on Ethereum can withdraw stakes from the consensus layer, which is also a milestone change in the history of Ethereum development.

As the upgrade date approaches, many industry insiders have expressed their predictions and opinions on the Ethereum Shapella upgrade and its development trends after the upgrade.

The Shapella upgrade is expected to be an important milestone in the development of blockchain. This upgrade will enable more people and institutions to become experimenters in the blockchain industry and gain a deeper understanding of the blockchain with the PoS consensus mechanism.

About 59% of illiquid ETH (approximately 3.62 million to 4 million) may be withdrawn after the Shapella upgrade.

The report released by Nansen believes that after the Shapella upgrade, ETH liquidity may face the following three stages of changes:

• Phase 1: Lasts about 27 hours, and the amount of ETH that may be withdrawn is approximately 84,000 to 125,000.

• Phase 2: Lasting approximately three to four days, the amount of ETH that may be withdrawn per day will increase to approximately 136,000 and 173,000.

• Phase 3: will last between 19 and 52 days, and the amount of ETH that may be withdrawn per day will increase by another 48,000 to 53,000.

Illustration of the three-stage changes that ETH liquidity may face after the Shapella upgrade. Image source: Nansen

After Shapella is upgraded, the number of Ethereum staking participants and the staking ratio will increase.

Chris Burniske, a partner at venture capital firm Placeholder, expects the Shapella upgrade to reduce the risk of Ethereum staking and pave the way for increasing the staking ratio.

Chris Burniske said that in the quarters after the Shapella upgrade, the ETH pledge ratio may increase by 2 to 4 times. At the same time, he refuted the view that the Shapella upgrade may lead to a similar "dumping" situation for related digital assets. He believes that this prediction does not fully consider the impact of the Shapella upgrade on market dynamics.

Chris Burniske said that currently about 15% of Ethereum’s ETH is in a pledged state, but compared with other public chains, the relevant ratio is 50%~70%. Chris Burniske believes that the low proportion of ETH pledged is because the pledge withdrawal function was not clearly defined before and the risks are unknown.

Original link

It is necessary to pay attention to the actions that regulators may take after the Shapella upgrade, especially against trading platforms.

The week after the Shapella upgrade, we should see a large number of validators experience the staking withdrawal function, which provides a good buffer opportunity for validators who need liquidity. However, due to the impact of the activation queue, it will take some time for all new validators to join the blockchain network and receive incentives.

The liquidity demand of some long-term ETH holders will increase, which may affect the market value of digital assets such as stETH.

As for the long-term development of Ethereum, based on past experience of public chains such as Polygon and Solana, the possibility of validators taking this opportunity to completely exit is generally small.

However, the current regulatory compliance challenges have also brought more uncertainty to the digital asset industry. For example, in early 2023, the U.S. Securities and Exchange Commission launched an investigation into the Kraken trading platform, and eventually settled the charges with Kraken agreeing to stop providing staking services to U.S. users and pay a fine.

Therefore, after Shapella is upgraded, it is also necessary to pay close attention to changes in the specific regulatory requirements of relevant regulatory authorities, especially the regulatory requirements for trading platforms, in order to more accurately judge the possible trends of future industry development.