Ether Locked for Staking Reaches All-Time High - Bitfinex blog
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Ether Locked for Staking Reaches All-Time High

Despite fears that Ethereum’s Shapella upgrade would cause a massive sell-off as staked coins became accessible for the first time since prior to the Merge, staked ETH has reached a new All-Time High. It seems the ability to withdraw has reassured investors who sat on the sidelines during the initial staking rush, and they are now comfortable staking their Ether.

Ethereum’s Shapella Upgrade was a Success

Last month in April, Ethereum implemented its Shapella upgrade, which added several improvements to the protocol. Shapella is an amalgamation of the names of the Shanghai and Capella upgrades, which were enacted at the same time. Shanghai was a set of improvement’s to Ethereum’s execution layer, while Capella added fixes to Ethereum’s consensus layer. 

Among the improvements was the ability to unstake and withdrawal previously staked Ether, which had been locked and inaccessible to Ethereum stakers, for months in the prior run up to the Merge, when Ethereum switch from a Proof of Work (PoW) consensus to Proof of Stake (PoS). 

Check out our article about the Shapella upgrade to learn more.

Some Investors Feared a Shapella Selloff

In anticipation of the consensus switch, many exchanges and staking pools allowed Ether holders to stake their tokens, before the Merge took place. Staking officially went live on December 1st 2020, and some users have patiently waited years until Shapella was activated on the Ethereum mainnet, to access staked ETH and the corresponding earned rewards.

Users were able to stake and earn staking rewards ahead of the Merge, although the caveat was that both the original staked Ether, as well as the earned staking rewards, would be caught in limbo at least until the Shanghai upgrade, which was still quite a ways off, at the time the Ether was staked. 

This meant that last month’s Shapella upgrade would give everyone access to their staked ETH at once, causing fears of a massive ETH selloff that could have potentially crashed the Ethereum market. Before the Shapella upgrade, Ethereum users had staked about 14 percent of Ethereum’s total supply of ETH, or around 16 million coins, with some estimates as high as 18 million Ether.

Immediately after Shapella, all staking rewards accrued for the last two years were immediately available to ETH stakers. This amounted to roughly around one percent of the total supply of Ether, or an estimated one million ETH. 

Along with those coins, users had the option to withdraw their 32 originally staked Ethereum, but there was a bottleneck in the network’s ability to process withdrawal requests, so it was predicted to possibly take weeks or even months, hopefully limiting the impact on downward price pressure, to an extent.

The Feared Selloff was Milder than Anticipated

In the days around Shapella and immediately after, Ether’s price continued to rise, hitting a high of $2,120 four days after, on April 16th. Despite the excitement and the initial pump, there was a considerable backlog for withdrawals with a two week wait for both full and partial withdrawals. 

Coindesk reported that around a 1000 validators immediately exited and processed full withdrawals within 24 hours of Shapella, with another 17,000 validators waiting on requests to be processed. Validators processing full withdrawals and exiting the beacon chain made up only around four percent of the 567,000 validators at the time. The impact to on-chain security was minimal.

While ETH prices have been on the decline since the April 16th high of $2,120, it has not been the massive selloff predicted in the days before the ability to unstake and withdraw Ether went into play with the upgrade. ETH currently sits at $1,771, it certainly hasn’t been the crash many feared.

An interesting thing to note, it seems that after withdrawing, some node operators began restaking just days after. It’s not clear how many of the original nodes which left the network after Shapella have restaked, but there has been a marked increase in staking.

Staking Ether has Continued to Explode

The total impact of Shapella’s unlocking of staked ETH has been minimal on ETH prices.  Ethereum users appear to have taken some profits and enjoyed some of their rewards, but staking has also seen a large wave of growth as the amount of Ether locked has reached record levels.

The amount of Ethereum locked has reached 19,321,757 ETH. This sum includes ETH considered “out of circulation”, a label referring to ETH staked on the Beacon chain, ETH that’s been deposited to the Beacon contract which is not yet validating, and Ether which has been rewarded on the Beacon chain.

The amount of locked Ether is a metric which is somewhat analogous to the hash rate in a PoW blockchain. It’s incredibly bullish to see this metric increasing as it means that the Ethereum blockchain becomes more secure and shows that Ethereum holders are confident in their ability to park value in staking and passively accrue rewards, regardless of withdrawals being live, or of Ether price.

With Shapella smoothly enabled, Ethereum developers have not slowed their pace in planning the next upgrade. Currently known by the clunky name “Dencun”, which like Shapella, combines the names of two upgrades, Deneb and Cancun.

This new Ethereum upgrade will enable “Proto Dank Sharding” an improvement for scaling Ethereum and which could lower fees on layer two Zk Rollups. Dencub would add the improvements set forth in Ethereum Improvement Proposals  (EIPs) 4844, 6780, 6475 and 1153.