Ethereum Deep Dive: Health check ahead of Shanghai upgrade in next month

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key takeaways

  • Ethereum’s Shanghai upgrade set for March, when all staked ETH will be issued and eligible to be sold
  • 16.1 million ETH are currently at stake, equivalent to $26 billion, which is 14% of the total supply
  • Capital has fled the Ethereum ecosystem over the past year as higher Fed interest rates provide investors with an alternative source of yield while DeFi rates have plummeted
  • Ethereum’s Total Value Locked (TVL) is down more than 75% from its peak

Ethereum There is a big event happening on the horizon.

The much anticipated Shanghai upgrade is scheduled for March. This is an important date because after a long wait for investors, the ETH locked in ETH 2.0 will finally be released.

And, there’s a lot of it. 16.4 million ETH to be exact, which is equivalent to 15% of the entire supply. This locked ETH is worth close to $26 billion at the time of writing.

Ethereum Volume and TVL Down

Unless You’ve Been Living Under A Rock, You’ll Know That The Last Year Has Definitely Been A Good Year In Crypto No kidding. Volume, interest and prices have declined in the space, as a tight macro environment combined with several crypto scams have torpedoed the market.

For Ethereum, when looking at transaction volume, the numbers may actually be slightly better than expected, though still not a great reading.

From a peak of 1.5 million transactions per day, the numbers have definitely come down, but are still around the million mark, and much higher than pre-Covid. Notably, many of Ethereum’s rivals have been significantly undervalued, resulting in an increase in its market share; It may be a large piece of the pie, but the pie is a very small one.

Capital has fled the Ethereum ecosystem

TVL is probably a better indicator. The metric complements the flight of capital from the space well, with Ethereum down to $28 billion, a 74% drop from its peak of $109 billion in November 2021.

I included ETH price on the above chart to demonstrate how correlated it is to price. Obviously, this makes intuitive sense, and the price of ETH has gone live with TVL.

But when plotting the above chart in ETH instead of USD, it still shows a decline.

This is a sign of downside in the crypto space in general, but also a very real threat to DeFi that is rising interest rates in the economy.

The Federal Reserve is engaged in an extremely aggressive hiking cycle, as it moves to aggressively rein in inflation. Not only has this driven down the price of riskier assets, but it has also introduced a competitive source of yield for investors who were previously forced out on the risk curve, many of whom have access to sky-high DeFi rates. Used to look towards

Not only has the Fed rate increased from near zero to 4.5%, but DeFi yields have plummeted in the opposite direction, from dizzying levels seen during the pandemic to 1%/2%, many in the teen years. were in This has drained excess capital out of Ethereum.

Eyes now turn to Shanghai upgrade

All eyes will now turn to the Shanghai upgrade, the next major date for Ethereum, following the merge event that went live in September and turned the network into proof-of-stake, from its former proof-of-work consensus.

While liquid staking options have allowed many investors to trade ETH regardless, issuing so much ETH is still a big deal. I will continue with another piece on what this could mean for the price of ETH, but with respect to fundamentals and the continued growth of the network, this is definitely a step in the right direction.

The merge was delayed but came in September and went smoothly. The Shanghai upgrade is the next step in that.

Cryptocurrencies have suffered a lot in the past year and Ethereum has borne the brunt. Freefalling volumes, capital and prices are signs of this. and while the macro continues bus drive For crypto, this will (hopefully) eventually change. Then – and only then – will these things help set Ethereum up to resume its growth. But it’s a long road.

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