Ethereum Validators Endure Long Wait for Staked ETH: Whats next?
Explore the effects of the Shanghai Hard Fork and consider whats next as we watch the situation unfold.
The Shanghai update serves as a vital progression towards the highly awaited Ethereum 2.0, which aims to enhance the network's scalability, security, and eco-friendliness. Among the most notable shifts is the transition from the existing proof-of-work consensus model to a proof-of-stake approach, which offers greater energy efficiency and reduced susceptibility to centralization.
On April 12, Ethereum successfully implemented the Shanghai upgrade, allowing withdrawals from its proof-of-stake blockchain for the first time. As the impact of this un-staking unfolds, it is crucial to monitor the inflows of Ethereum to exchanges as this may signal potential selling pressure in the market. Currently, around 18 million ETH are held in staking contracts on the blockchain, equating to an approximate value of $36 billion.
When large amounts of Ethereum are transferred from wallets to exchanges, there may be a higher likelihood of selling, as these funds could be used to sell on the exchange for other assets or fiat currency. It could also suggest that investors and traders are anticipating a bearish trend in the market and are positioning themselves to sell.
In the days following the upgrade, crypto exchanges received a significant net inflow of ETH. Traders deposited 1,101,079 ETH to exchanges between April 13 and April 16; this was the largest four-day net inflow in a month, yet, only 921,579 ETH has been removed.
Nansen, a blockchain analytics company, has reported 575,359 validators on the Ethereum blockchain. Out of this number, 28,436 validators have expressed their desire to exit, meaning approximately 5% of validators have opted out of Ethereum's staking process. Additionally, they reported that validators who have requested to withdraw their staked ether (ETH) after the recent Shanghai upgrade may have to wait up to 17 days to receive their ETH back, which is an increase from the 14-day wait period reported last week. The Shapella / Shanghai hard fork will automatically unlock the ETH rewards for validators, but service providers and staking pools still decide when to release the rewards.
If all validators withdraw their Ethereum at once, it could lead to a sudden and significant increase in the supply of Ethereum on the market, which could cause a sudden drop in its price due to excess supply. An unstaking schedule and withdrawal queue prevent this by ensuring a gradual and controlled release of Ethereum as it becomes unstaked rather than a sudden and massive influx.
While a massive outflow is more newsworthy and dramatic than a slow, steady leak, it makes no difference if the outcome is the same. The controlled and staggered unstaking and withdrawals could be seen as a gift. It is an opportunity to think, take time, analyze and pay attention to the developing trend. No one can predict the future, but this is a critical time to pay attention and be ready to make necessary moves.
It is a good sign that the fork was accomplished with minimal impact on the network and no significant problems with the upgrade. This success was an outstanding achievement by the Ethereum network. It remains to be seen what the price of Ethereum will do following the upgrade. I have seen some analysts predicting that because the downside has been minimal after the fork, it indicates a bullish trend. While this is a good sign, it could also be due to the restrictions on Ethereum withdrawals.
It is important to note that sometimes restrictions and policies, like limits on withdrawals and amounts unstaked, can skew data in a way that hides true sentiment or trends, and it will take some extra time and a sharp eye to determine the true story the data is telling. I would caution against assuming that the current withdrawals of 5% are the end of the story. It may be the case, and that would be an excellent outcome and a huge vote of confidance but being convinced so early could be risky.