The largest altcoin project in the market, Ethereum (ETH), is preparing to launch billions of coins with the Shanghai upgrade expected next month. Some experts say that stakers may prefer to wait longer than sell.
Leading altcoin $29 billion ETH to be unlocked
Ethereum developers and investors are gearing up for another upgrade following the merger, where the network transitioned to full carbon neutrality. The so-called Shanghai rise, which is expected to take place next month, has important implications for Ethereum (ETH).
In September 2022, the transaction processing mechanics of the Ethereum network moved away from mining (PoW) to the PoS model, where validators commit or stake cryptocurrencies as collateral. Validators who want to participate in the staking model of the new PoS Ethereum network can take charge with 32 ETH. Centralized exchanges like Coinbase and private platforms like Lido allow staking without meeting 32 ETH. Meanwhile, news that the SEC will ban staking has dragged the number of ETH staked on Coinbase to the lowest levels since July.
ETH staked for about 2 years will be released
Although the merge took place in 2022, Ethereum users started staking ETH in December 2020 to access the verification software with the knowledge that staked assets and accrued rewards will remain locked until the next update on the Blockchain.
According to data provider Staking Rewards, around 14% of the entire ETH supply is currently staked, corresponding to a market cap of around $29 billion. The Shanghai upgrade will allow validators to finally withdraw these assets if they so choose.
Validators who choose to sell can create selling pressure on the altcoin
Given the long-term lockdown of assets and the uncertainty in the market, there are concerns that many validators will withdraw and sell staked ETH, which could put pressure on the token’s value.
According to Galaxy Digital, at least 75% of ETH staked on Ethereum is controlled by an exchange like Coinbase or Kraken, or a broker like Lido or a proprietary platform like Rocketpool. Most withdrawals are expected to come from Lido, Ethereum’s largest staking platform, which allows users to stake any amount of ETH instead of the 32 ETH threshold.
“Lido’s significant withdrawal margin will greatly slow down any selling pressure in the withdrawal process,” Allan Wojnowski, head of research at Staking Rewards, told Forbes in a written comment. Data to support this: an average of 20,800 ETH continues to be staked every day.
Upgrade may encourage more altcoin investors to stake ETH
Allan Wojnowski later claimed that the upgrade would likely encourage more ETH investors to stake their holdings, and the annual reward rate for those running nodes could drop as a result, which is currently 4.33%. “Withdrawal facility can increase overall liquidity,” Wojnowski said. We think that once withdrawals become fully functional, the amount of Ethereum staked will increase. These developments will make ETH more attractive instead of creating selling pressure.”
Matt Hougan, chief investment officer of crypto index fund manager Bitwise Asset Management, agreed: “Today, many investors looking to stake ETH and generate returns are sitting on the sidelines. After all, most investment strategies cannot tolerate an indefinite lockdown. For this reason, most investors stay away from the market. However, once this indefinite restriction is lifted, the percentage of investors willing to stake their ETH will explode.” Hougan’s team expects the total amount of ETH staked to increase by at least 50% by the end of the year.
Broker staking platforms can generate significant profits
JPMorgan analysts estimate that 95% of individual investors on Coinbase will be able to participate in Ethereum staking after the Shanghai upgrade, which could generate $225 million to $545 million in annual revenue for the exchange at current prices.
Next steps of leading altcoin project after Shanghai rise
An Ethereum testnet named Zhejiang, after a Chinese province just south of Shanghai, successfully simulated withdrawals on Tuesday, according to Ethereum development operations engineer Barnabas Busa. As Kriptokoin.com, we have included the details in this article.
According to the February 2 call from the Ethereum developers, the developers have chosen an activation date of Thursday, February 9 to publish the upgrade on the Sepolia testnet. After Sepolia, the upgrade will be released on the Goerli testnet and, assuming these activations go smoothly, the upgrade will be activated on the main Blockchain in mid-March. Some developers predict that the date will be March 27.
According to Ethereum.org, Sharding, the next multi-stage upgrade, will provide more capacity to store and access data on the Ethereum network and lower transaction fees for services running on Ethereum. The process is expected to begin this year.
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