One of the biggest events of the year for Ethereum is fast approaching, the Shanghai Update, but what n earth is it and what could it mean for Ethereum? In this article, we’ll try to answer all your questions and look at the potential impact it could have on the market.
At a glance….
•Around 18 million tokens are being unlocked
•The update/fork brings in a range of updates for the network
•Staking no longer requires a lock-up period
•The unlock of tokens will be staggered daily
So first up, what on earth is the Shanghai Fork?
The Shanghai Update is a hard fork happening on Ethereum in April/March, this fork will result in the staked Ethereum on the Beacon chain being unlocked allowing validators to withdraw their Ethereum. While there are many other events that will be caused by this update the ability to withdraw staked Ethereum is the one that has everyone interested.
Due to validators soon having access to all their staked Ethereum, many in the crypto community believe this could trigger a sell-off as validators recoup their investment, however, many think that validators will leave their Ethereum on the Beacon Chain to keep validating and collecting rewards.
You may be wondering what the Beacon Chain is?
The Beacon Chain was launched in 2020 as an Ethereum PoS (Proof of Stake) blockchain which allows Ethereum to operate a PoS consensus layer. Think of Beacon Chain as the backbone of the Ethereum PoS system.
Now, while it may seem daunting that all this Ethereum is going to suddenly be available it isn’t quite as daunting as it sounds.
How will the Shanghai Update affect Ethereum?
Apart from the unlocking of staked tokens, the Shanghai Update brings in a number of other features that in the long run should benefit Ethereum as a whole.
Most of the updates being pushed have been designed to reduce gas fees for Ethereum developers and improve scalability which as we all know has been an issue on Ethereum for a minute now.
How much Ethereum is being unlocked?
There is around 18 million or $33 billion worth of Ethereum locked in the Beacon Chain staking contract which has been accumulated since its launch in 2020, the team has taken into account what a mass sell of from this could look like so they have set a limit of a maximum of 1350 validators will be able to withdraw their staked Ethereum per day.
This amounts to just 0.2% of staked assets, this will massively mitigate the sell-off however can create a longer drawn-out event.
The Bull Case
Now, of course, there is a bull case for this event…
Since this update enables staked Ethereum to be withdrawn at any time this could create more demand for Ethereum as users can now more freely stake their Ethereum without worrying about lock-up times.
While a lot of the Ethereum currently in the contract was deposited in 2020 meaning the Ethereum price is much higher now which may cause validators to take profit, there are a lot more users that could now be interested in becoming a validator since the lock up period is gone.