#Ethereum Shanghai Upgrade is just around the corner, and millions of #ETH is about to enter the market. Will this lead to a drop in ETH's price? Is it a nightmare await for ETH holders?
TL;DR:
Ethereum Shanghai Upgrade is planned to happen on April 12th 2023, this will allow ETH stakers to withdraw their staked ETH
Almost 18 million ETH staked, or equal to around US$32 billion
There are 2 options to withdraw the staked ETH: partial or full
Partial, stakers can withdraw only the interest, possibly 1 million ETH withdrawable for this option
Full, stakers can withdraw all of their staked ETH, but with the network maximum capacity of 50.400 ETH each day
57% of ETH stakers are liquid stakers through Liquid Staking Derivatives platform providers
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The Ethereum network transition from the Proof-of-Work (PoW) consensus mechanism to the Proof-of-Stake (PoS) evolution is ongoing to improve the network's scalability, energy efficiency, and security. This transition began with The Merge on September 15th, 2022.
Another major Ethereum upgrade operation is scheduled for this month, specifically on April 12th, 2023. This upgrade is called The Shanghai Upgrade, and it is rumored to significantly affect the price of ETH.
Why is that? Through The Shanghai Upgrade, there will be a major change in the Ethereum network and ETH. The change is that ETH stakers will be able to withdraw or unstake their staked ETH.
Since December 1st 2020, ETH can be staked on the Beacon Chain as the requirement to be a validator on the Ethereum network, with minimum 32 ETH to be staked. Beacon Chain is a new layer on the Ethereum network designed as "validators layer", the layer where transactions being validated and new blocks being created on the Ethereum network.
Until this day, ETH stakers could not withdraw and unstake their locked ETH back, but with the upcoming Shanghai Upgrade, stakers will be able to unstake and withdraw their staked ETH. This raises the question of how the Shanghai Upgrade will affect ETH's price. Will the upgrade cause a depreciation in ETH's price?
What it is Means for Ethereum Shanghai Upgrade?
Based on the data from Ethereum's official website, ethereum.org, at the time of writing this article, the total amount ETH being staked almost reach 18 million ETH, equivalent to around 32 million United States Dollar. This means that a significant amount of ETH may come into the market in the near future.
However, it is important to note that the staked ETH after the Shanghai Upgrade cannot be withdrawn all at once. This should help protect the ETH price and hold back selling pressure that might otherwise occur if all staked ETH were withdrawn simultaneously.
According to Binance Research, validators have two options for withdrawing their staked ETH: partial or full withdrawal.
With partial withdrawal, validators can withdraw only the interest earned on their staked ETH, without the original staked capital. This means that up to 1 million ETH (~US$1.8 million) could potentially enter the market through this withdrawal option.
Alternatively, validators can opt for the full withdrawal option, which allows them to withdraw both their staked capital and interest. However, the Shanghai Upgrade has been designed to limit daily withdrawals to 50,400 ETH (~US$91.3 million).
As a result, there will only be US$91.3 million worth of selling pressure on the ETH price each day from the full withdrawal option. Mathematically, this amount would only affect about 1% of ETH's price each day based on Ethereum's market cap in the last 24 hours.
It is worth noting that the majority of ETH stakers, which is 57% of them, are liquid stakers through Liquid Staking Derivatives (LSD) platform providers such as Lido, #Binance , Coinbase, and others.
Liquid Staking is a process of staking or locking coins, in this case, ETH, through #LSD platforms. Stakers will receive a token that has the same value as their staked ETH as a derivative ETH token. This allows stakers to use the derivative token for many things while still participating in validating the Ethereum network.
LSD platforms have been existed long before the Shanghai Upgrade become the main topic and have been become the main option for many ETH stakers around the globe. Therefore, it can be said that this group of stakers - liquid stakers - do not have a special reason to sell off their ETH post-Shanghai Upgrade, as they would have already done so in the months before.
Conclusion:
With the implementation of those two withdrawal options, it can hold back the selling pressure post-The Shanghai Upgrade. However, only 43% of the ETH stakers are illiquid and waiting for the upgrade because the liquid stakers would have already sold their derivative ETH tokens long before.
DISCLAIMER:
This article is just for information purposes only, not any financial advice. This article may be used as a reference but please always Do Your Own Research (DYOR) based on your own personal preferences, especially when it comes to spending money. Mad's Crypto Corner is not responsible for your own financial decisions.