In a few hours, the Ethereum blockchain will get the most significant technical boost since it shipped the Merge last September. While it was the first network to introduce the concept of blockchain networks that are interoperable with smart contracts, its competitors (offering users a reliable experience in terms of transaction fees and throughput) have flown past owing to its curtailments.
With Shapella, a simultaneous event of the Shanghai and Capella upgrades, a host of new features based on a new architecture is set to debut on the Ethereum mainnet at block 6209536, during epoch 194048 at around 10:27 pm UTC today. Shapella’s implementation is part of Ethereum Improvement Proposal (EIP) 4895. It is forecast to result in substantial long-term advantages, including bolstered transaction processing capacity (though not as high as the 100,000 transactions per second expected with darksharding), reduced transaction costs, improved security and more efficiency of smart contracts.
Even with that in mind, what enthusiasts and users alike actually have their sights on is Shapella introducing withdrawals of staked Ether for the first time in the network’s history. On-chain analytics platform Dune Analytics show that 18,237,913 ETH is staked on Ethereum, and with market prices recently aiming for the sky, this amounts to at least $34.4 billion.
Ethereum Beacon Chain statistics. Source: Dune Analytics
Depositors can opt to exit with their entire holdings or do with partial withdrawals. For the latter, only a maximum of 16 validators’ withdrawals can happen per block, and the rewards are distributed on a weekly basis. The alternative is validators withdrawing their 32 ETH stake, plus any accrued penalties or rewards from the Beacon Chain.
Shapella to rekindle the institutional fire?
When the Merge shipped seven months ago, it was during the depths of the bear market, and Ethereum did not see much change in institutional sentiment in response to the improvements that came with the upgrade. So, will Shapella boost Ethereum in terms of institutional interest and engagement?
Ether Capital CEO Brian Mosoff shared his optimistic outlook, explaining that post-Shapella, the network would become more attractive to this investor class due to the reduced regulatory barriers for staked ETH funds. This, in turn, facilitates the entry of products to market and provides greater certainty in terms of liquidity – new investment vehicles will emerge, including structured products that cater to investors looking for more traditional access points.
MetaMask institutional product lead Johann Bornman previously asserted that Shapella would be pivotal to driving more institutional interest. These sentiments were also shared by CEO Tim Ogilvie of the non-custodial staking platform Staked, predicting that more institutional investors would join the staking space, proliferating its long-term demand. While the prospect of Shapella attracting more institutional investors is rife, EY global blockchain leader Paul Brody warned in a recent conversation that most of the big institutional investors might choose to remain on the sidelines until there is clarity on what rules and legislations govern crypto.
Ethereum’s possible price action post-Shapella
Selling pressure?
Ethereum’s price has recently chartered upwards and logged considerable gains, but questions remain on what’s to come following Shapella. Multinational financial services firm JPMorgan is among the less optimistic. Analysts of the bank, led by Nikolaos Panigirtzoglou, said in a recent note that Ether might face serious selling pressure once this unlock happens. They argued this would be due to more than 1 million Ether in staking rewards getting unlocked this week. Moreover, JPMorgan noted that the staked Ether balances of troubled entities are likely to hit the market, predicting that the asset will underperform Bitcoin over the coming weeks.
A more muted impact
On the flip side, researchers at Fidelity Digital Assets believe that the impact of Shapella is not as straightforward. They explained that while stakers had been at a loss for a while, the recent rally has put approximately half of them in a profitable position, as seen in this Dune Analytics dashboard. Further, the analysts pointed to the fact that liquid staking tokens and staking service providers have native controls on withdrawal timelines and the high likelihood of re-staking as reasons why Ether’s price should remain muted. Ether Capital’s Mosoff agrees that Shapella would have a bullish effect on Ethereum in the long term, further cementing its position as the leading player in the blockchain sphere, but downplayed it as a non-event, likely not to sway the price of Ether.
Currently
Shapella drags along with its significant expectations, but blockchain analytics firm Glassnode contends that even in the severest of outcomes the impact on the Ethereum economy would be acceptable and a lot less dramatic than most expect. In its latest issue of The Weekly On-chain, Glassnode estimated that depositors intend to sell 170K ETH after Shapella, out of which just 70K of the unstaked sum will remain liquid. In addition, its analysis of the exit queue suggested that by April 14, at least 45,098 ETH will have exited the Beacon Chain.
In the lead-up to Shapella, Ether is exchanging hands at $1,920, currently gaining on the modest CPI figures released in Wednesday’s reading for March. Comparatively, liquid staking protocols have embraced a descent course, as seen with the leading liquid staking governance tokens. Market data shows that Lido DAO’s LDO is down 3% in the last 24 hours. Rocket Pool’s RPL ($43.05) is down 5.65% in the same period.
To learn more about Ethereum, check out our Investing in Ethereum guide.
The post Ethereum Ships the Shapella Upgrade Today: Here is What to Expect appeared first on Securities.io.
