What the Ethereum Shanghai Upgrade Really Means

The Ethereum Shanghai upgrade is around the corner, with the hard fork tentatively set for March this year.

The hard fork represents Ethereum’s (ETH) next big upgrade and is one that could potentially have a significant impact on Ethereum's price.

Significance of the upgrade

Currently, about 14% of the entire ETH supply, or 16M tokens, which is equal to roughly $26.7B, is staked on the Beacon Chain. Following the hard fork, this substantial sum will become liquid. This means that stakers and validators can withdraw their staked assets from the Beacon Chain.

Source: DefiLlama

To put this into perspective, some ETH stakers have been waiting for three years and more to claim their rewards. That said, will these investors withdraw all their assets immediately and sell them on the open market? We at Moni Talks believe this is unlikely.

We believe the Ethereum Shanghai upgrade may see increased investment into ETH staking. After all, the cryptocurrency is the leading Proof of Stake (PoS) blockchain and the second-largest crypto asset in terms of total market cap after Bitcoin (BTC) - just over $200B.

Why investors should not be concerned

Decentralised finance (DeFi) has a total value locked (TVL) of $49.23B at the time of writing, of which Ethereum accounts for nearly 60%. Regardless of the crypto market situation, the number of ETH deposited over a period has continued to rise at a balanced rate, crossing 500,000 validators in January 2023.

With the current staking yield of about 5.45% annual percentage rate (ARP), rewards boosted by maximal extractable value (MEV) sitting close to 7%, and deflationary tokenomics, we believe that a substantial inflow into ETH staking may take place upon the upgrade.

It is worth noting that several ETH stakers purchased the cryptocurrency at its peak (during the bull run when prices were northwards of $4,000). Given that the current price of the cryptocurrency is around $1,670, it is unlikely that stakers and validators will sell their investment for a loss (they may be left to sit for longer).

It is also worth noting that Ethereum stakers must part with 32 ETH to participate in the liquid staking programme. This is possible directly with the blockchain or through liquid staking protocols such as Rocket Pool and Lido Finance.