key takeaways
- Ethereum Shanghai Upgrade Imminent, Which Means Stakeholders Will Finally Be Able To Unstake Their ETH, Some Of Which Has Been Locked Up Since 2021
- 17.7 million ETH at stake, which is equivalent to 14.8% of the entire supply
- This is just below the amount of ETH on exchanges, which is 18.3 million ETH, which is equivalent to 15.2% of the supply.
- The price effects of the upgrade are likely already there, but the amount of supply being released is notable nonetheless.
The Ethereum Shanghai upgrade is due in mid-April. While not quite as seismic a change as the merge event that took place last September, it is nevertheless a pivotal moment for the world’s second-largest cryptocurrency.
The most impressive results will be around Ethereum stakers. For the first time ever, people who have staked on ETH will be allowed to liquidate their holdings.
How much is Ethereum at stake?
And that’s a lot of ETH. Currently, 17.7 million Ether are locked in contracts, equivalent to 14.8% of the total supply.
Once the upgrade is triggered, this ETH will finally be marketable. This may sound like a scary proposition, but in reality, there are several liquid staking options available throughout the staking period, which began in late November.
This way, stakers get back liquid “tokens” that can be traded in place of ETH. These tokens can be redeemed for real ETH once the upgrade goes live – which we now know is imminent.
However, soon after the event the selling pressure may increase slightly. Liquid tokens have traded for (usually small) discounts compared to ETH, while it will also now be more comfortable and easier for people to sell.
Despite all this, it would be naive to conclude that this will dent the price of ETH. The market knows it’s coming and the same old concept of “price in” has become relevant. Remember, many hypothesized that the merger would result in a massive increase in prices, but it came and went with only minor volatility.
If the Shanghai upgrade goes smoothly, it wouldn’t be surprising to see the same happen here.
Could Ethereum Staking Yield Be DeFi’s Risk-Free Rate?
One thing I have wondered about is what the returns on ETH will look like going forward.
One theory is that, if Ethereum continues to act as a base layer for decentralized finance, staking yield could look like some sort of risk-free yield in the space. As such, it can be used as a benchmark to value investments in the space, the risk-free rate of return is used in traditional finance.
Then again, the way DeFi has gone over the past few years, it probably won’t. Since the bear market completely destroyed cryptocurrency, the space has seen an influx of capital from the space.
Where is the rest of ETH held?
15% of the ETH supply is locked in staking contracts, and while that number has been rising steadily since staking opened in late 2020, balances on exchanges have done the opposite.
There are currently 18.3 million ETH on exchanges, equivalent to 15.2% of the supply, which is up slightly from 14.8%.
The 18.3 million ETH on exchanges represents the lowest figure since June 2018 in the depths of the last crypto winter.
The chart shows that the balance has been steadily declining since ETH staking went online.
Of course, the above charts are in the original units. Flipping the denominated unit over to the dollar value of ETH instead, you get a much wackier pattern. Nonetheless, the value of the dollar on the exchanges is still above the level till the first quarter of 2021.
As the cryptocurrency market made a full rally off the back of renewed hopes that the Federal Reserve would wind down high interest rate policy sooner than previously thought, Ethereum followed suit, trading at $1,800, the previous Its highest price since September – right when the merger happened.
The macro will continue to drive the price, but the Shanghai upgrade is nevertheless an important moment as Ethereum solidifies its long process of transitioning from a proof-of-work blockchain to a proof-of-stake.