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A look at Ethereum’s next upgrade


After almost three months post-Merge, Ethereum developers have agreed on the scope of the next major upgrade of the network, the Shanghai hard fork, which is now scheduled to take place in March 2023. Among other things, it was decided that Shanghai will include the activation of ETH withdrawals, a long awaited functionality that will permit Proof-of-Stake (PoS) validators to unstake the ETH they have deposited as collateral to participate in the new consensus layer of Ethereum, the Beacon Chain. After the switch to PoS, the cumulative staking deposits have increased by ~13%, reaching a total amount of ~15.6M ETH (or ~$20B at current prices), indicating that Ethereum investors continue to gain confidence and join the validation set of the network.

Why should investors care?

In our view, the activation of ETH withdrawals will bring a lot more predictability to Ethereum validators, allowing them to unstake their committed capital at will (according to a queue that unstakes ETH in batches), either to take profits on their rewards from new ETH issuance (transaction fees paid to a PoS validator are already liquid post-Merge) or even to release their total principal deposit. This much anticipated upgrade is of huge importance for the continued growth of the validation network on Ethereum, particularly because many investors and institutions that would like to stake their ETH and participate in the Beacon Chain can’t currently do so due to the illiquidity of ETH deposited for consensus. Furthermore, this release will mark a new phase for liquid staking services such as Lido, with users then becoming able to redeem ETH in exchange for their liquid staking tokens (stETH for example). As a consequence, users will then be able to rotate their ETH holdings among different liquid staking providers, reducing the concentration of validation power on Ethereum and bringing more decentralization to the network's consensus.


[1] Staking is the process through which a blockchain network user 'stakes' or locks their cryptocurrency assets on a network as part of the consensus mechanism, thus ensuring the security and functionality of the chain. Staking is a core feature of Proof-of-Stake (PoS) blockchain protocols, and each blockchain project which incorporates a staking feature has its own policies for staking requirements and withdrawal restrictions. Source: Cryptopedia.

[2] As of December 9, 2022, with data from Glassnode and CoinMarketCap.



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