Here's everything you need to know about Upper Pella.
Original title: " Everything You Need to Know About Shapella "
By Ben Giove, Jack Inabinet
Compilation: Lynn
It's Upper Perla season!
After years in the making, one of the most anticipated network upgrades in Ethereum history is here, and the Shapella upgrade will go live tomorrow around 6pm EST!
Shapella represents the final milestone in Ethereum’s multi-year transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus. It will enable Ethereum stakers/validators to withdraw their deposits from the beacon chain.
This upgrade has a major impact on the ETH and staking situation. As a result, there has been a lot of discussion, threads, opinions (and misinformation) surrounding the fallout of this event.
It's easy to get lost in the noise when faced with all this at once - but we're here to help you make sense. You have questions, we have answers. Here's everything you need to know about Upper Pella.
1. Shapella upgrade? Isn't this called Shanghai upgrade?
Yes, the community originally rallied around the name "Shanghai" for withdrawals. But the more technically correct "Shapella" title has recently found a home in the crypto vernacular.
Shapella = Shanghai + Capella, this new term refers to the implementation of changes that occur at both the execution and consensus layers of the network. At the execution layer, "Shanghai" will create a new transaction type that allows stakers to withdraw validator balances, and at the consensus layer, Capella will enable the beacon chain to accept withdrawal requests.
Together, the two will give stakers the ability to withdraw their deposits for the first time in Ethereum’s history.
2. Why is there so much hype surrounding Shapella?
Upper Pella marks the completion of Ethereum's transition to PoS.
The first step is to "merge," merging the Beacon Chain, launched in December 2020, with the old PoW Ethereum chain. It is successfully completed in September 2022. Until then, however, fixed betting has been a one-way street. Holders can deposit their ETH to the Beacon Chain and earn rewards, but cannot withdraw any funds.
Liquidity Derivatives(LSDs) like Lido Finance and Rocketpool partially alleviate this Liquidity problem, providing Liquidity to stakers by issuing tradable derivative tokens that represent claims on their deposits.
However, the ETH staking rate is only 14.9%. This is far below the average level of 60.1% of the top 20 PoS networks, which may be largely due to the current technical and Liquidity risks of ETH staking before Pella . This is why many believe that Upper Pella un-stakes ETH , with withdrawals enabling stakers to withdraw. As a result, Ethereum is likely to experience a "hyper-collateralization cycle," which refers to a surge in pledged deposits that brings its collateralization ratio close to the average.
This anticipated staking boom is also helping fuel enthusiasm around LSD, which is poised to be one of the main beneficiaries of this growth (more on that later).
3. Do I have to change the way I use Ethereum because of this?
unnecessary! Ethereum users will not be impacted by the Upper Pela implementation and they will be able to transact as before. Of course, a little difference is if you are a solo staker and/or validator. If you are part of one of these groups, you will be able to start claiming rewards and withdrawing your stake if you choose to do so (more on that below too).
4. How do withdrawals work? How much ETH can be withdrawn?
There are currently over 18.2 million ETH(approximately 576,000 validators) deposited on beacons, and an additional 1 million ETH rewards have been accumulated since staking went live.
These two groups of ETH have different exit processes. Validator exits (ie 18.2 million) go through a full withdrawal process. On the other hand, accumulated rewards, known as partial exits, qualify for accelerated liquidation.
Full withdrawals have to go through two queues, withdraw and withdraw, as a delay, when stakers signal their intention to withdraw their deposits, it becomes fully Liquidity. There are some validator calculations when calculating this number, but after Pela goes live, there will be about 57,000 ETH per day eligible to be withdrawn via full withdrawals. During the first 54 days after the upgrade, up to 330,000 ETH can be moved to exit the beacon chain.
Partial withdrawals (i.e. staking rewards) can bypass these queues and become liquid funds almost instantly. According to our analysis, it will take about 4.75 days for this ETH to be withdrawn and circulated after listing on Pella.
5. Will ETH sell off after Shapella?
That's the $230 billion question!
As mentioned above, the accumulated staking rewards of 1 million ETH($1.9 billion) will be eligible to be withdrawn within 5 days of listing on Pella. This represents the first significant staked ETH supply hitting the open market, and it is likely that some of it will be sold. If all were sold, it would account for around 12% of ETH daily trading volume. However, the probability of this happening is very low, as many validators will choose to restake in different scenarios.
After that, an estimated 33 million ETH(worth $6.3 billion at current prices) will be eligible to be withdrawn within the first 54 days after the upgrade, taking into account queues and a 27-hour delay after Shapella's implementation. We do not know how much of this will be withdrawn and sold, although we are able to monitor these pledge flows in real time. But in the end, the author believes that the Shanghai upgrade will have little impact on the price of ETH in the short term. I expect that the vast majority of staked ETH will not be withdrawn. For the ETH that is withdrawn, a significant portion will be re-staked rather than sold.
Additionally, the Shanghai upgrade is a "Bullish unlock" in the medium to long term, as it should result in more ETH being bought and staked. So far, so good for the bulls - as ETH has rallied 6.1% in the week leading up to the news. We'll see if it keeps up.
6. What will happen to Liquidity collateralized Derivatives(LSD)?
Like traders, LSD holders are not largely influenced by Upper Pella.
While there is some speculation that its Liquidity may change and its price relative to ETH may fluctuate (i.e. trading volume is higher or lower than 1:1), LSD is still free to trade other ERC-20s and can continue to be deployed on Among the supported DeFi protocols.
LSDs like stETH, rETH, frxETH, and sETH2 will still represent 1:1 claims for ETH deposits to their respective protocols. However, not all LSD issuers will initially support withdrawals. For example, Lido, the largest staking entity on the Beacon Chain with a 31.3% market share, will not support stETH withdrawals until "around mid-May" due to pending audits.
7. How will the LSD governance token behave?
The LSD governance token is one of the best performing assets in 2023, along with Lido (LDO), Rocket Pool (RPL) and Frax (FXS), surging 103-135% against USD and 17-37% against ETH so far this year .
Much of this outperformance was expected for Shapella, with traders expecting the upgrade to catalyze a flood of deposits into the Liquidity staking protocol.
