Shanghai Upgrade: Impact on the Ethereum Network
Just two weeks ago, the Ethereum network underwent the Shanghai Upgrade, a major hard fork that unlocked ~15% of the total ETH supply for withdrawals. This exciting development has raised some questions about its potential impact on the Ethereum ecosystem. So, let’s dive in and explore what Shanghai is all about and what it could mean for the future of Ethereum.
In September 2022, Ethereum transitioned into a Proof of Stake blockchain, allowing ETH holders to stake their tokens and earn validator rewards — a huge win for decentralization! However, there was a catch: staked tokens and rewards were locked until Ethereum’s next upgrade, the Shanghai Upgrade.
Shanghai is a hard fork of the Ethereum network that includes EIP-4895, which supports validator withdrawals from the beacon chain for all users who have staked ETH since December 2020. With this update, many are wondering if Shanghai will cause a supply shock and whether it’s bullish or bearish for the Ethereum network.
To understand the implications, let’s look at some quick facts:
- Beacon Chain Deposits: 18,116,007 ETH (approximately 15% of the total ETH supply)
- Around 41% of staked ETH is through liquid staking protocols
- Lido dominates 75% of the LST market (roughly 31% of ALL staked ETH)
One bullish argument for Shanghai is that since nearly half of all staked ETH goes through LSTs, a large amount of expected sell pressure is already priced in. Lido’s stETH 90-day deviation from its peg is around 0.2%, which means that if users wanted to sell, they’d be willing to take the minimal slippage to exit their staked positions.
Moreover, Shanghai is considered a major ETH derisking event. Many believe that deposits to the beacon chain will increase, with LST protocols being the main beneficiaries. The LST market has naturally taken over the ETH staking market share, and Shanghai is expected to boost that even further.
At Gravita, we believe in the importance of decentralization and strive to be a force for growth and diversification of the ETH validator network. That’s why we allow users to borrow GRAI against a growing set of ETH LSTs, including stETH, rETH, cbETH, and more.
In conclusion, the Shanghai Upgrade has brought a wave of excitement and anticipation to the Ethereum community. As the dust settles and the impact of this major update becomes clearer, it will be fascinating to see how it shapes the future of Ethereum staking and the broader ecosystem.
