[{"category":{"name":"BitScreener Exclusive","exported_url":"bitscreener-exclusive"},"id":"468a0bbc-145e-4f99-84f4-deafb0ec6770","updated_at":"2023-04-22T09:59:27.256901+00:00","account":{"firstName":"Mason","lastName":"Thompson"},"description":"Ethereum Shapella is currently the newest and the most attractive event in the crypto and blockchain industry. Shapella combines Shanghai and Capella upgrades to boost Ethereum.","sapo":"Shapella is a combination of the upgrades for Shanghai and Capella, happening at the same time, that aims to improve the performance and agreement aspects of Ethereum.","title":"All You Need to Understand about Withdrawals of ETH Shapella","content":"

What is Shapella?

Shapella combines the Shanghai and Capella upgrades, which will occur concurrently to enhance Ethereum's execution and consensus layers.

Ethereum underwent two upgrades on April 12th:

Capella is a hard fork of the Beacon Chain that allowed staked ETH to be withdrawn for the first time.
Shanghai refers to a hard fork of the execution layer that made it possible to withdraw stakes from the Beacon Chain to the EVM, which is referred to as EIP-4895.

What is Shapella?

Figure 01. What is Shapella?

Along with Shapella, five Ethereum Improvement Proposals (EIPs) will be upgraded, including EIP-2565, EIP-2929, and EIP-2718. These upgrades will bring significant changes to how Ethereum functions.

Following the upgrade, users can now stake their ETH, receive an automatic distribution of ETH rewards, and un-stake their ETH to regain full access to their entire balance.

How Does the Withdrawal System Work?

The Shapella upgrade brings forth two withdrawal types: partial and full.

Partial withdrawals allow validators to access the ETH balance exceeding the 32 ETH required to establish a validator node. These withdrawals, which include staking rewards, can be immediately liquidated without going through the queues. Based on our analysis, this ETH should take about 4.75 days after the Shapella upgrade to become available for withdrawal and liquidation.

Full withdrawals allow validators to completely withdraw their stake from the Beacon Chain, including their original 32 ETH and any earned rewards or penalties. However, full withdrawals must pass through two queues, withdrawal and exit, which introduce a delay between when a staker signals their intention to withdraw their deposit and when it becomes fully liquid.

Approximately 57,000 ETH will be eligible for full daily withdrawals immediately after implementing the Shapella upgrade. Up to 3.3 million ETH could leave the Beacon Chain within the first 54 days of the upgrade. Although there is some validator math involved in calculating this figure.

Two types of Withdrawal

Figure 02. Two types of Withdrawal

With the activation of Shapella, all validator nodes will have the option to withdraw their funds, but there are specific restrictions for each type of withdrawal. The network permits only 16 validators per block or every 12 seconds for partial withdrawals. Complete withdrawals are more intricate, and the number that can be processed will depend on the number of active validators in the network. Full withdrawals will be validated within each epoch, which consists of 32 blocks and typically occurs every 6.5 minutes on average.

Given that there are over 560,000 active validators, the network can process seven full withdrawals per epoch, resulting in 1,800 complete withdrawals daily or over 57,000 ETH withdrawals daily. However, if the number of active nodes per day falls below 327,680, the network can only process four complete withdrawals daily.

The withdrawal queue operates on a first-in, first-out (FIFO) basis, meaning that the system processes withdrawal requests in the order in which they were received in the queue. This mechanism, which restricts the number of withdrawals, prevents many nodes from being deactivated simultaneously and potentially causes the network to collapse.

Shapella Mean for the Future of Ethereum?

The Staking Rate of ETH

With thousands of individuals soon being able to enter and exit staking positions freely and withdraw their staked ETH at any time, some analysts predict that it may trigger a new wave of interest and a significant surge in staking adoption.

Staking Rewards, a prominent data provider for staking and crypto-growth tools, states that Ether is one of the largest networks using the Proof-of-Stake consensus mechanism regarding staked capitalization. Over $35.6 billion worth of tokens is currently participating in staking, which accounts for less than 15% of its total supply being locked up.

When compared to the staking rates of the top 10 PoS chains, Ethereum's staking rate of 14.87% is notably low.

It is not surprising that Ethereum's staking rate is currently low since staked ETH cannot be withdrawn, which is unlike other PoS networks. However, once this risk is eliminated, the Ethereum staking participation rate is expected to approach or exceed the industry average of 50%+ due to Ethereum's dominance in generating revenue, earnings, and capturing economic value.

The Market for Liquid Staking

One key aspect of Ethereum's network security moving forward is liquid staking, which was developed in 2021 to unlock the liquidity of staked ETH. With liquid staking, users can delegate their ETH to staking providers, who then issue receipt tokens that can be used in DeFi to earn an additional yield on top of the base ETH staking yield. As more ETH is staked, it is likely that the easiest way for users to stake will be through liquid staking providers such as Lido, Rocket Pool, and Frax. It is anticipated that the total value of staked ETH under the management of these projects will continue to grow.

Currently, liquid staking providers manage approximately $14.5 billion worth of staked ETH. Considering Ethereum's future roadmap and current market capitalization of $220 billion, it is anticipated that the total market size of liquid staking providers will grow to hundreds of billions of dollars in the medium term.

Post Shapella and Beyond

The staking ecosystem in the crypto community has generated a lot of excitement with the upcoming Ethereum update, Shapella, due to its potential impact.

Despite initial predictions that the price of ETH would decrease following the upgrade, it instead increased. On April 14, it reached $2,100 for the first time since May 2022, with high trading volume generating considerable excitement. However, this increase may have been partly due to favourable macroeconomic results for March, such as the Consumer Price Index (CPI) and Producer Price Index (PPI).

The ability to withdraw staked ETH has been a long-awaited feature that has the potential to attract more users and drive up demand for ETH. However, there is also a possible drawback if many investors decide to sell their staked assets, which could cause a market sell-off.

The effect of Shapella on the market is still uncertain and relies on multiple factors such as market sentiment, macroeconomic conditions, and individual investor analysis. The previous Ethereum update, the Merge, was similarly anticipated and produced a "buy the rumour, sell the news" phenomenon. Whether Shapella will experience a comparable pattern or not is yet to be determined.

According to Glassnode's analysis, the hard fork is not expected to have a significant impact on Ether's price movement due to several measures in place that prevent an excessive supply of Ether from entering the market all at once.

In addition, Glassnode has observed that only 22% of the 253 depositors who are exiting are currently in a profitable position, indicating that the selling pressure may be restricted.

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The crypto market is generally known for its unpredictability, and investors should perform their own research and analysis before making any investment decisions. While Shapella is unquestionably a significant development for Ethereum, its impact on the market can only be assessed once it is implemented and its effects become more apparent.

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All You Need to Understand about Withdrawals of ETH Shapella

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