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Shanghai + Capella = Shapella 👽
Ethereum’s Shapella upgrade will enable the withdrawal of staked ETH from the blockchain network and effectively complete its years-long transition to proof of stake. What does that mean? Dive in.
Hello, y'all. Ethereum is getting an upgrade. We need an upgrade. Maybe you all need too. At some point, everything needs an upgrade. That's life 🧬
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The Ethereum network is gearing up for the Shapella Upgrade - the grand finale after the Ethereum Merge last September.
Shapella = Shanghai + Capella
Shanghai upgrade is on the execution layer
Capella upgrade is on the consensus layer
All this means that over 18 Million staked ETH is about to get unlocked from the beacon chain.
What's the point?
When the Ethereum merge happened, they introduced beacon chain, which allowed users to stake their ETH (like putting it in a piggy bank) and earn rewards for helping to validate transactions on the network.
Unlike other chains, users couldn't take their ETH out of the beacon chain and enjoy their rewards just yet.
The merge did not allow individual stakers to withdraw deposited Ethereum (ETH) or the rewards generated by those deposits.
And that's why the "Shanghai-Capella" upgrade is important, as it will finally enable the withdrawal of staked ETH.
Why not sponsor, eh?
Liquid staking derivatives
Currently, decentralised liquid staking platforms account for 33.3% of the total staked ETH, with Lido DAO leading the pack with a whopping 93.79% share.
And the governance tokens linked to these platforms are soaring too, enjoying double-digit percentage gains in just 24 hours!
LSDs incentivise more people to join the Ethereum staking party by offering them a liquid token that can be easily swapped for ETH or used in DeFi platforms to increase staking rewards.
Here's the real trip
LSD tokens have been outperforming ETH, with gains of up to 150% compared to Ethereum's 65% gains year-to-date.
Harm for the prices?
Ether has spiked this week to a nine-month high, ahead of a the network upgrade.
We don't think the Shapella upgrade and staked ETH withdrawals will harm the price of ETH.
Simply put, nobody knows; there are two theories about the potential effects of Shapella activation on the Ethereum (ETH) price.
First, it will increase selling pressure on the network. Many fresh Ethers (ETH) will be unlocked and eventually released on the market. Some of their holders will be interested in selling them, so it could be a dangerous bearish catalyst.
At the same time, as explained by top analyst Chris Burniske, the opportunity to unstake Ethers (ETH) will be a huge derisking factor for investors: with no withdrawal option, they would have to reduce the flexibility of their portfolios. As such, there is no consensus about the effects of Ethereum Shapella on ETH price dynamics.
What are the reasons?
Slow and steady withdrawals: Stakers will only be able to unstake a limited amount of ETH per day. So, any potential selling pressure will be spread out over a long period of time. Also, if stakers were eager to sell, they could have already done so, but we haven't seen a massive sell-off of staked ETH tokens.
Stakers are in it for the long haul (most of them): They've been patiently waiting for this moment, and they might not want to sell at a loss. In fact, some of them might even want to get more ETH!
More efficient and secure ETH: this is giving Ethereum a power-up, attracting more users, increased demand. Increased adoption could lead to more demand for ETH.
Free from Forced Selling: Ethereum will be actually free from any pressure to sell, and the potential volatility of the Shapella upgrade might even reduce the ETH supply further. The ability for stakers to withdraw their tokens will also contribute to higher steady-state staking, improving the demand-supply dynamics.
A better deal: The upgrade means reduced transaction costs for rollups, with at least 10x savings on fees for Layer 2 networks. Also, lower costs for posting data to the mainnet, which accounts for 4% of total gas used.
All we can see is more and more demand.
What do experts think?
Bernstein analysts Gautam Chhugani and Manas Agrawal are bullish on Ethereum, citing its resilience in the face of the bear market, and the upcoming Shanghai upgrade as a game-changing catalyst.
"Never in Ethereum's eight-year history have the stars aligned so perfectly, in our view, for its competitive dominance, growth momentum, and clear market leadership."
Tommy Honan of Swyftx sees Ethereum as a solid long-term play due to its user-friendly platform and the upcoming Shanghai upgrade.
Dominic Gluchowski of CoinJar is optimistic about Ethereum's future, but expects short-term drops.
Dr John Hawkins of the University of Canberra believes Ethereum has more uses than Bitcoin but faces competition from central bank digital currencies.
Nicolas Merton of Datadash is cautious, expecting a broader move to the downside.
Sean Foley of Macquarie University sees Ethereum as investing in the infrastructure of the internet. So, do your research and buckle up for the ride!
What are the numbers saying?
Trailing behind Bitcoin, Ethereum has grown into an ecosystem of ecosystems. It may have 41% of Bitcoin’s market cap, but Ethereum has 3x more daily transactions. While Bitcoin is charged with the ‘sound money’ pitch, Ethereum has been rooting itself as DeFi infrastructure. Most importantly, Ethereum’s size now dictates other L1 chains’ development.
To partake in Ethereum’s conglomerate of dApps and L2 scalability networks, it has become a feature to be EVM-compatible. After all, Ethereum holds 63.86% dominance with $40.57 billion in total value locked. It is telling that the next chain by size comes from the world’s largest crypto exchange, Binance Smart Chain (BSC), at only $7.11 billion TVL.
Presently, Beacon Chain holds over 563,000 validators. They have accumulated a massive 18 million ETH stake, worth around $33.5 billion. Typically, their ETH reward ranges between 4.5% – 5.4% annually.
Because staked Ether accounts for about a seventh of the total supply of the token, or roughly 16 million coins, this has massive implications. The current value of all staked Ether is over $26 billion.
The final word
Andrew Thurman, a data analyst at Nansen thinks that Ethereum’s two-year journey to proof-of-stake is a "monumental event in the history of open source software … plane changing engine midair.”
“It’s like throwing darts … That’s why it's so much fun to debate on Twitter—because people just genuinely don't know.”
He reckons that even if there’s a rush to withdraw staked funds, much of that ETH may ultimately be re-staked so that holders can continue earning rewards. Exactly how much may be re-staked, however, is difficult to assess at this point.
TTD Week That Was 📆
The week headline makers staged a comeback.
Saturday: The dark side of Bitcoin 🧛🏿
Friday: The meteoric rise of DEXs☝️⬆️
Thursday: AI conundrum and Apple's BTC surprise
Wednesday: The dramatic hacker 🎭 criminal Trump 🦹♂️
Tuesday: Musk has delivered. As promised ❤️
TTD Week In Funding 💰
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