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Ethereum Shapella Upgrade Approaching: what to expect

Stay Informed with Our Article on the Ethereum Shapella Update: Learn About the Protocol Upgrade for Enhanced Performance and Functionality.

Table of Contents

Introduction

As announced by the Ethereum Foundation in a blog post, the official date for the Ethereum network’s Shangai and Capella (Shapella) upgrade is set: it will be deployed on the mainnet at epoch 194048, scheduled for 22:27:35 UTC on Apr. 12, 2023.

The network’s hard fork will finally allow $ETH stakers to withdraw their coins, moving them from the Beacon Chain to the Ethereum Virtual Machine, the Execution Layer. Shanghai and Capella will respectively upgrade Ethereum’s execution and consensus layers, while withdrawals will be enabled by the Ethereum Improvement Proposal (EIP) 4895.

At the time of writing, 18.037.990 $ETH are currently staked, which corresponds to 15.5% of Ethereum’s supply, worth roughly $33B. Liquid Staked Derivatives (LSDs) account for 44% of Ethereum’s staked capitalization, followed by individual whales with 39%, and centralized exchanges with 14.5%, according to Dune Analytics.

 

 

$ETH staked balance over time. Source: beaconcha.in

 

 

Ethereum hard forks: so far so good

The last Ethereum network’s hard fork, which occurred on September 2022, was Paris, commonly known as “The Merge”, which shifted the network’s consensus mechanism from Proof-of-Work to Proof-of-Stake.

Before Paris there was London, which introduced the EIP-1559 on August 2021. This upgrade changed how the network calculates and processes transaction fees, and started burning part of the tokens used to pay for gas fees.

Both these hard forks had remarkable effects on Ethereum and $ETH.

The combined effect of Paris, which dropped new $ETH emissions by around 90%, with the fee-burning mechanism introduced with the London upgrade, made $ETH potentially deflationary.
The Shapella upgrade will provide additional utility to $ETH, by enabling withdrawals.

To ensure that everything runs smoothly, the Ethereum Foundation doubled the value of the bug bounties (up to $500.000) it is offering to coders that identify any vulnerabilities with the Shapella code until April 5.

However, during Shapella’s test on the Goerli testnet, some issues were reported regarding a significant delay in activation time due to the failure of many validators to update their client software on time.

As said by Tim Beiko from the Ethereum Foundation, the delay occurred because Ethereum’s Goerli validators aren’t economically incentivized to monitor and run nodes, but since they will be on the mainnet, similar problems shouldn’t repeat.

 

 

 

Liquid Stakes Derivatives: a never-ending Narrative

LSD protocols, which allow users to earn yields on their assets while providing them with a tradeable and liquid receipt token, were probably the most successful narrative of the past year, accounting for around $16.6B of TVL.

Lido, the top LSD provider, which alone accounts for $11.15B of TVL, is currently the largest Ethereum staker, with a market share of 31%. Other major $ETH stakers are CEXes, with Coinbase, Kraken and Binance as the biggest ones.

 

 

Staked $ETH breakdown.  Source: @hildobby on Dune Analytics

 

The upcoming Shapella upgrade will greatly benefit LSD providers, whose receipt tokens have spread widely across DeFi by now, being accepted on several different chains and protocols.

Since users now don’t have to worry about the amount of time that they’ll have to wait before being able to unstake their $ETH again, LSD providers, which grant them the possibility to maximize their yields,  will probably still play a crucial role within the DeFi ecosystem during the next years.

 

 

Conclusion

Every Ethereum hard fork has had a great impact on DeFi, and Shapella will be no less.

While some people are worried about the huge amount of $ETH that could be dumped on the open market all at once, the Ethereum Foundation has already taken action to prevent that from happening. In fact, the full amount of staked ETH would take over 18 months to fully withdraw, with roughly 2,200 staked Ether withdrawals that will be processed each day.

The possibility of unstaking your $ETH could also revive institutional interest in Ethereum and crypto, further boosting adoption. As an agency, we always hope the best for the future of Web3, and we can’t wait to see how this new Ethereum major event will unfold.

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