The Shanghai shuffling
Many owners of Ether, the native token of the blockchain, are getting ready for what they anticipate would be a “great reshuffle” as Ethereum, the largest commercial network in cryptocurrency, gets ready for its greatest software upgrade since the “Merge” last year.
What’s the premise? The so-called Shanghai upgrade is the result of many months of hard effort that altered how Ethereum functions. The network transitioned in September (via the Merge) to employing unique wallets storing Ether to conduct the job, making the entire process less energy-intensive, in place of using energy-hungry computers to order transactions.
With this “proof-of-stake” technique, Ether owners have the opportunity to make money by staking, or promising, their tokens to these wallets in exchange for yield that is measured in fresh Ether. The issue is that customers have been allowed to stake their Ether since December 2020, either through their own devices or through services like Lido, Coinbase, and Rocket Pool, but they haven’t been able to get their money back.
Come to Shanghai. Users will finally be able to withdraw their staked Ether thanks to the update, often known as Shapella in the industry. The shuffle enters the picture at this point.
People who have become dissatisfied with a specific staking service or with staking on their own are predicted to look to remove their bets and re-stake their Ether with alternative service providers. According to data, consumers would withdraw a staggering 1.2 million Ether, valued close to $2.3 billion, in the five days following Shanghai. It is likely that many of these coins will be staked again.
The resulting shake-up would be advantageous for so-called liquid-staking services, which allow customers to deposit their Ether in exchange for a derivative token that can be used for lending, borrowing, and trading within decentralized finance apps. Here, users can earn yield without having to wait days, probably weeks, or even months, for their Ether to be withdrawn, which is an advantage. To maintain Ethereum’s security following Shanghai, all withdrawals will be queued.
Some lone stakers might want to use those services to outsource that effort. And they wouldn’t be giving up much either: according to tracker Staking Rewards, users that outsource their staking operations can still make a respectable 4.9% in addition to the rich rewards of 5.4% they receive from running their own equipment.
The most well-known illustration of a liquid-staking business is Lido, which provides the stEth derivative token that is frequently used in DeFi. But it’s possible that its rivals will gain more from the massive restructuring.
This is why: More than anyone else, Lido already has influence over around 31% of all staked Ether. This large market share is causing others to worry that Ethereum is becoming too centralized, which might lead to one company wreaking havoc on the ecosystem. According to several sources in the sector, some Lido investors are waiting until Shanghai (and until May, when Lido indicated it will let withdrawals) to shift their stakes elsewhere.
Prices of governance tokens produced by the various liquid-staking providers may change while the great reshuffle takes place. Be on the lookout for a plethora of these businesses to step up their attempts to entice customers away from rival providers with lower rates and other benefits. Ether’s price is anticipated to be under pressure as a result of the ambiguity surrounding which of the withdrew Ether will be re-staked and which will be sold.
There will be a lot of moving components, so there will very certainly be some hiccups even if Shanghai goes as smoothly as possible. It’s best to sit down.
