The Ethereum network is set to undergo a major upgrade in March 2023, as the upcoming Ethereum Shanghai hard fork will mark the completion of the network’s transition to proof-of-stake (PoS). This transition began on September 15, 2022, with the Merge, and once Shanghai is implemented, Ether that has been locked since December 2020 will gradually become liquid.
As of February 16, 2023, the total Ether supply sits at 120 million, and of this, over 16.6 million Ether is currently locked in the PoS staking protocol, which was valued at $28 billion. This move to PoS has started to achieve the original goal of making Ether’s supply deflationary, as over 24,800 ETH has been burned since the Merge, making the token 0.05% deflationary on a yearly basis.
One of the major developments that has happened since the Merge is the rise of liquid staking derivatives (LSD). These protocols allow users to benefit from staked Ether while retaining the ability to sell the derivative token received on the secondary market. Since Ether staking began, liquid staking has surpassed illiquid staking, and as of February 13, 57% of staked Ether is liquid versus 43% illiquid. This is important to note as it gives investors access to liquidity, which could reduce sell pressure post-Shanghai.
At the time of the Merge, Ether was trading in the $400-$700 range, and many investors began staking when Ether was near its all-time high of $4,200. Because of Ether’s 69% correction since hitting an all-time high, many of the investors who staked their Ether are currently at an unrealized loss. This means that the minority of stakers who are in profit are likely to be strong believers in the Ethereum network, and thus, may not be looking to sell their tokens when the Shanghai update occurs.
Another major development since the Merge is the rise of Lido, which officially overtook MakerDAO as the highest total value locked in decentralized finance on January 2, 2023. As of February 13, Lido is also the largest staking entity in Ether, with over 5 billion ETH staked in the protocol, representing 29.2% of all entities. This means that almost 30% of all stakers have the option for current liquidity through Lido.
When taking into account the fact that solo stakers who run nodes make up 24.9% of all stakers, it becomes apparent that over 55% of all staked Ether is held by either solo stakers or Lido. This could mean that the risk of an Ether price dump may be reduced when the tokens are able to be unstaked.
Despite the potential for a bullish outcome due to the on-chain data, some analysts are still predicting the potential for a sharp downside in Ether’s price. As such, it is important for investors to do their own research and carefully consider all the risks involved before making any investment decisions.
Overall, the Ethereum Shanghai hard fork is an exciting development for the Ethereum network, and it will be interesting to see the effects it has on the price of Ether. The transition to PoS has already started to achieve the original goal of making Ether’s supply deflationary, and the rise of liquid staking derivatives has allowed investors to benefit from staked Ether while retaining the ability to sell the derivative token received on the secondary market. Additionally, the rise of Lido has allowed almost 30% of all stakers to have the option for current liquidity. Finally, with over 55% of all staked Ether being held by either solo stakers or Lido, the risk of an Ether price dump may be reduced. Although some analysts are still predicting the potential for a sharp downside in Ether’s price, investors should still do their own research and carefully consider all the risks involved before making any investment decisions.
