Exploring the New Landscape After the Ethereum Shanghai Upgrade

Ethereum is set to complete the Shanghai upgrade in April, opening the beacon chain staking ETH withdrawal feature. This is a hard fork of the Ethereum execution layer, expected to implement 9 EIPs. As of mid-March, approximately 17.5 million ETH have been staked, accounting for 15.25% of the total supply. Validators have accumulated an average of over 2 ETH in staking rewards, and after the Shanghai upgrade, over 1 million ETH will flow into the market.

This article explores the changes in the Ethereum ecosystem after the upgrade in Shanghai, including the official withdrawal process, ETH price trends, the current status of major LSD protocols, and withdrawal design aspects.

Ethereum Official Withdrawal Mechanism

Withdrawals are implemented by the execution layer and the consensus layer, divided into "partial withdrawal" and "full withdrawal". Partial withdrawal only extracts earnings; full withdrawal exits the validator node and withdraws all funds. Withdrawals must meet specific conditions, such as possessing a 0x01 Credential.

Each block can handle a maximum of 16 withdrawal requests. Withdrawals are initiated at the consensus layer and do not require gas fees. Based on the current staking amount, it theoretically takes about 5 days to complete all withdrawals, but the actual process may take longer.

Analysis of ETH Selling Pressure

Early stakers may be eager to withdraw profits, but users who entered after February 2021 are in a loss position. Most will be "partial withdrawals." It is expected that once withdrawals are opened, the selling pressure on ETH will not be too severe, mainly coming from early players.

Due to withdrawal conditions and processes, the peak selling pressure may occur 3-4 days after the Shanghai upgrade. The ETH staked by centralized institutions may be unlocked on a large scale, but it is likely to continue being deposited into other staking protocols.

Current Status of LSD Protocol and Withdrawal Design

The staking volume of various LSD protocols accounts for 42.97% of ETH, with Lido alone occupying over 30%. LST tokens are already circulating in the secondary market, and DeFi yields have performed well. The Shanghai upgrade is favorable for the price recovery of LST, but it also tests the project team's risk management capabilities.

Mainstream LSD protocols such as Lido, Rocket Pool, and Frax Finance have designed different mechanisms for withdrawals, seeking a balance between user experience, operation speed, and security. The main considerations include avoiding attack arbitrage and improving user experience.

Conclusion

The Shanghai upgrade will reshape the Ethereum staking landscape. Users may choose new staking methods, and market shares will be redistributed. New LSD protocols and staking-based DeFi applications are expected to emerge, such as staking index tokens and ETH yield futures. This will bring new development opportunities to the Ethereum ecosystem.