New Era After Ethereum Shanghai Upgrade: Key Points Analysis

Abstract

Ethereum is set to complete the Shanghai upgrade in April, enabling the withdrawal of staked ETH from the Beacon Chain. This is an important hard fork for Ethereum's execution layer, which will implement 9 EIPs. As of March 14, 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 upgrade, more than 1 million ETH will flow into the market.

This article discusses the withdrawal mechanism and related risks of Ethereum and LSD protocols after the upgrade in Shanghai, as well as the potential impact on ETH prices and LSD token prices.

1. Ethereum Official Withdrawal Process

Withdrawals are implemented jointly by the execution layer and the consensus layer, and are divided into two types: partial withdrawals and full withdrawals. Partial withdrawals only extract earnings, while full withdrawals exit the validator nodes and withdraw all funds. Withdrawals must meet the following conditions:

• The validator has 0x01 Credential
• Partial withdrawal: The validator is in Active status and the balance exceeds 32 Ether.
• All Withdrawals: The validator is in Withdrawable status

Each block can process a maximum of 16 withdrawal requests. Withdrawals are initiated at the consensus layer and do not require gas fees.

2. Will there be a sell-off of Ethereum?

Currently, approximately 17.57 million ETH has been staked, with validators averaging 33.98 ETH staked. According to the withdrawal mechanism, 3.6864 million ETH can be withdrawn daily, theoretically allowing for complete withdrawal in 5 days. However, in reality:

• Early stakers may be eager to profit.
• Most requests will be partial withdrawals.
• The withdrawal process takes time, and a complete exit requires at least 27.3 hours.
• Some validators do not meet the withdrawal conditions

It is expected that there will be significant selling pressure for 3-4 days after the upgrade, but there will not be an extreme situation of total withdrawal. The ETH staked by centralized institutions may be unlocked, but it is very likely that they will continue to deposit into other staking protocols.

3. Current Status and Withdrawal Design of Various LSD Protocols

3.1 Liquidity Staking Tokens (LST ) Performance

The staking volume of the LSD protocol accounts for 42.97% of the total, with Lido exceeding 30%. LST tokens perform well in DeFi, accounting for about 65% of the total staking volume. The Shanghai upgrade is beneficial for the return of LST prices, but it also tests the project team's risk management capabilities.

stETH is the most liquid LST, and its price had a significant discount due to the 3AC and FTX incidents. cbETH was previously discounted, but has shown strong performance recently. rETH has a market cap of 391 million USD, and its price has consistently been higher than Ether.

3.2 Comparison of Withdrawal Processes for Each LSD Protocol

The protocol design needs to balance user experience, operational speed, and security, mainly considering:

1. Avoid attacks and arbitrage behavior
2. Set withdrawal thresholds while improving user experience

Lido offers two modes, Turbo and Bunker, to establish a withdrawal buffer. Users receive NFTs representing their position in the queue, which can be traded on the secondary market.

Rocket Pool introduces minipools to reduce capital requirements, allowing withdrawals to obtain ETH from the deposit pool and partial withdrawals.

Frax Finance's frxETH can be redeemed for ETH at a 1:1 ratio, while sfrxETH earns staking rewards.

StakeWise offers two mechanisms: Pool and Solo, with the V3 version addressing the risks of centralized validators.

4. Conclusion and Reflection

The Shanghai upgrade will affect the price of LSD protocol tokens, withdrawal design, and derivative DeFi applications. Users may reselect staking protocols, and market share will be redistributed. Protocols like Rocket Pool are worth paying attention to.

Possible future occurrences:

• LST-based index token
• Futures products anchored to ETH yield
• Staking ETH-based stablecoin project
• Incremental of lending agreements