Ethereum completed the activation of the Shanghai/Capella hard fork, enabling the withdrawal functionality for staked ether and lowering gas costs.
This concludes Ethereum's successful transition to Proof-of-Stake, strengthening the security and decentralization of the network.
Enabling withdrawals could attract more attention from institutional investors seeking ETH's "risk-free rate." This could result in more ETH being locked up, thereby reducing its circulating supply and potentially driving up its price in the long run.
The next Ethereum upgrade, Cancun, is expected to take place in the second semester of this year and aims to optimize data storage and further reduce transaction costs for Ethereum Layer-2s.
Almost seven months after the successful Merge, Ethereum activated its latest network overhaul, the Shanghai/Capella hard fork, on April 12, 2023, at 10:27 PM UTC. The event enabled the withdrawal functionality for staked ether (ETH), in addition to incorporating a handful of functionalities that, all else equal, lower gas costs and make it cheaper to use the Ethereum blockchain. The upgrade went through without any hiccups, consolidating the series of successful network hard forks that are materializing the Ethereum roadmap, with more than ~70% of active validators upgrading their nodes’ softwares prior to the validation slot in which the activation took place.
Shanghai concludes Ethereum’s transition to Proof-of-Stake
After Shanghai, Ethereum concludes its successful transition to Proof-of-Stake (PoS), finishing eight years of development and research that have finally brought the network to its intended consensus mechanism. This is yet another demonstration of the commitment of core developers in bringing continuous improvements to Ethereum, in its path towards greater adoption and better user experience over the long run.
In the coming days and weeks, it will be crucial to monitor the movement of funds in and out of the Ethereum validation set to gain insight into how investors, especially institutions, are responding to staking. These institutions can now confidently seek the "risk-free rate" in the crypto market by locking in their ETH, with the knowledge that it can be redeemed later (although there may be some wait times due to entry and exit queues).
Why does it matter to investors?
Over the long haul, it’s expected that the number of staked ETH will grow, strengthening the security and decentralization of the Ethereum network, reducing the liquid circulating supply of ETH and potentially driving its price higher. While there has been much debate regarding the potential volatility and negative impact that withdrawals can have on ETH’s price in the first few weeks following the upgrade, as ETH consolidates as an asset that generates flows to investors through staking, the token steadily becomes more appealing as a productive digital good, making it more similar to traditional assets and allowing conventional investors to gain more confidence in valuing the second largest crypto asset in the industry.
What’s next for Ethereum?
The next Ethereum upgrade is called Cancun, expected to take place in the second semester of 2023, which, among other things, will implement some data optimization improvements (known as Proto-Danksharding) allowing for second layer solutions built atop Ethereum (such as rollups Arbitrum and Optimism) to reduce even further transaction costs. This will enhance the end-user experience on Ethereum, with second layers becoming more performant and allowing cheaper interactions with decentralized applications and transfer of assets. In summary, Ethereum’s roadmap continues to materialize, showing that the network has what it takes to continue thriving and leading the smart contract platform space.
This material expresses Hashdex Asset Management Ltd. and its subsidiaries and affiliates (“Hashdex”)'s opinion for informational purposes only and does not consider the investment objectives, financial situation or individual needs of one or a particular group of investors. We recommend consulting specialized professionals for investment decisions. Investors are advised to carefully read the prospectus or regulations before investing their funds. The information and conclusions contained in this material may be changed at any time, without prior notice. Nothing contained herein constitutes an offer, solicitation or recommendation regarding any investment management product or service. This information is not directed at or intended for distribution to or use by any person or entity located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Hashdex to any registration or licensing requirements within such jurisdiction. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Hashdex. By receiving or reviewing this material, you agree that this material is confidential intellectual property of Hashdex and that you will not directly or indirectly copy, modify, recast, publish or redistribute this material and the information therein, in whole or in part, or otherwise make any commercial use of this material without Hashdex’s prior written consent.
Investment in any investment vehicle and cryptoassets is highly speculative and is not intended as a complete investment program. It is designed only for sophisticated persons who can bear the economic risk of the loss of their entire investment and who have limited need for liquidity in their investment. There can be no assurance that the investment vehicles will achieve its investment objective or return any capital. No guarantee or representation is made that Hashdex’s investment strategy, including, without limitation, its business and investment objectives, diversification strategies or risk monitoring goals, will be successful, and investment results may vary substantially over time. Nothing herein is intended to imply that the Hashdex s investment methodology or that investing any of the protocols or tokens listed in the Information may be considered “conservative,” “safe,” “risk free,” or “risk averse.”
Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Hashdex, and Hashdex does not assume responsibility for the accuracy of such information. Hashdex does not provide tax, accounting or legal advice. Certain information contained herein constitutes forward-looking statements, which can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” “believe” (or the negatives thereof) or other variations thereof. Due to various risks and uncertainties, including those discussed above, actual events or results, the ultimate business or activities of Hashdex and its investment vehicles or the actual performance of Hashdex, its investment vehicles, or digital tokens may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward- looking statements in making their investment decisions. None of the information contained herein has been filed with the U.S. Securities and Exchange Commission or any other governmental or self-regulatory authority. No governmental authority has opined on the merits of Hashdex’s investment vehicles or the adequacy of the information contained herein.