The Shanghai Update has been the talk of the town for a while now. So far around 17.9 million ETH which is worth approximately 32 billion US dollars has been staked. There is definitely a lot of excitement around this upgrade, which has increased significantly since the date of its launch was finally revealed. In this article, we will be going through everything you need to know about the shanghai upgrade as well as answering some important questions that users are asking.
What is the Shanghai Upgrade?
On the 15th of September, 2022, the Ethereum network underwent The Merge, which became of the most significant changes in crypto history. As a result of The Merge ETH altered its consensus mechanism as it migrated from a proof of work system to a more efficient proof of stake mechanism.
In a Proof Of Stake mechanism, the ETH will be staked in order to secure the network. The process of staking ETH has been very popular and common ever since 2020. However, this staking was enabled only for one way purposes. Once a particular amount of ETH was locked up to be staked, the user couldn’t really withdraw these funds.
However, as an antidote to this many liquid staking derivatives such as Lido entered the market. These platforms enabled users with the ability to mint tokens such as stETH which are close to 1:1 trading, and as a result, facilitated staked ETH liquidity. It was in the light of these developments that the Shanghai Upgrade was announced. All set to be initiated on April 12th 2023, the Shanghai Upgrade aims to bring some prominent changes in the blockchain network. This will include new features that will allow users to withdraw the ETH that they have staked, will significantly lower the gas fee costs for layer-2 solutions that function on top of Ethereum and will bring the much-needed transformations in the smart contract facilities
Shanghai Update Stakers and Withdrawals?
As we mentioned earlier there is approximately 32 billion dollars worth of Ethereum that is staked currently. The Shanghai update will not just give users the unstaking ability but will also facilitate a chance of earning rewards that will be automatically distributed. There are many questions that are coming up however regarding the stakers involved and the withdrawals. For example:
Who are the Stakers?
The stakers along with the percentage of stake ETH they hold is as follows
- Lido: 29%
- Solo stakers: 25%
- Coinbase: 12%
- Kraken: 7.5%
- Binance: 6.1%
- Others: 20.4%
What amount of ETH is up for withdrawal?
It is important to keep in mind that not all the 15 million staked ETH will be up for withdrawal immediately or all at the same time. Instead, there is a queue set in place where validators will have to wait for their turn to gradually unlock the tokens.
What are the types of withdrawals taking place?
Primarily there are two withdrawals that will be taking place, namely, partial withdrawal and full withdrawal
- In a partial withdrawal, only the interests from the staked amount will be taken out and not the capital of ETH that was staked. In this kind of withdrawal, the maximum amount of funds possible to be taken is 1 million ETH which amounts to 1.6 billion US dollars
- On the other hand, in a full withdrawal users can take out both the interest from the staked capital and the capital itself. However in this case the rate of withdrawal is restricted to 54 thousand ETH per day. This value has been calculated on the basis that there will be 7 validators per every epoch and in total 225 epochs will take place per day [ (24*60)/6.4*7*32 = 54,000]
What will be the effects of this Shanghai Upgrade?
The shanghai Upgrade is bound to have ripple effects and bring about some major changes, especially for Ethereum. The selling pressure is definitely something that will be affected. With the maximum amount of ETH that can be withdrawn every day set at 54,000, the potential sell pressure on a daily level will amount to a max of eighty million dollars. In the last twenty four hours Ethereum reported a trading volume of approximately 9 billion dollars as per the information given by CoinGecko. 80 million dollars is in fact even less than one per cent of this trading volume shown by ETH.
It is also interesting to keep in mind that around 57 per cent of ETH stakers have liquid access to their ETH owing to solutions like Lido or Rocketpool. So these users could have sold long ago and they did not have to wait until April 12 like the other 43%.
The ETH issuance can also have a modification after this upgrade. We have seen how before the Merge the block reward was 2.2 ETH per block. If considering the average rate of 15 seconds per block, that brings the issuance value to around 11,500 ETH per day. This value is also bound to see some change.
According to the CoinDCX blog, “However, one overarching positive thing that can be taken out of this is that while locking up coins is a means to make the process more secure, it could be also looked at as a means of artificial control and thus a removal of that cap could bring about more balance and equilibrium in the market.”
Learn more about Ethereum Shanghai upgrade: What does it mean for ETH?
The Shanghai Upgrade definitely seems like a step in the right direction for both Ethereum and the crypto industry in general. This is a crucial development that is bound to change the role of Ethereum in the crypto industry and strengthen its position. Even though there might be some significant price movement immediately after the update is initiated, in the greater scheme of things it will create a bullish trend for the ecosystem in our opinion.