Cryptocurrency

Shift toward Liquid Staking Derivatives expected after ETH Shanghai upgrade

Hull Invest

The Ethereum (ETH) Shanghai upgrade will be released in March, enabling withdrawals from the beacon chain and allowing ETH currently staked by ETH 2.0 validators to be unstaked.

Currently, more than 70% of ETH stakers are unable to access ETH and suffer losses, but with the Shanghai upgrade, stakers will now be able to access ETH and either sell at a loss or wait long-term until profits return. You can decide whether to keep

Ethereum: Mean and Median Block Spacing - (Source: Glassnode.com)
Ethereum: Mean and Median Block Spacing – (Source: Glassnode.com)

After ETH Merge

Back in September 2022, an ETH merge occurred with the Bellatrix upgrade. Along the way, block verification was taken over by the Beacon Chain, completing the transition from Proof of Work (POW) to Proof of Stake (POS).

The beacon chain is organized by validators who have deposited 32 ETH before starting operations. Currently, the number of beacon chain validators has reached 500,000, with a surge of new active validators, with a total of over 16 million of his ETH staked on ETH 2.0 deposit contracts.

Ethereum: Changes to Proof of Stake for Active Validators - (Source: Glassnode.com)
Ethereum: Changes to Proof of Stake for Active Validators – (Source: Glassnode.com)

New ETH credential format

Validators wishing to withdraw staking rewards should ensure that their withdrawal credentials are updated to the new “0x01” standardized format. The same prerequisites apply to validators who wish to stop validating or terminate their balances entirely.

Currently, about 300,000 validators have not yet updated their credentials from ‘0x00’, but about 200,000 have already updated on the beacon chain.

Out of a total of 500,000 validators, over 16 million ETH staked by them account for about 13% of the total ETH supply.

  1. Slashing — for malicious behavior.
  2. Income derived from issuance and fees.
  3. Inactive leaks — when validators block or prove.
  4. New deposits and eventually withdrawals.
Ethereum: Proof-of-Stake Total and Effective Balance - (Source: Glassnode.com)
Ethereum: Total Proof of Stake and Effective Balance – (Source: Glassnode.com)

Liquid staking derivatives

Due to the nature of staked ETH, it becomes a non-tradable asset once staked. As such, a number of providers have emerged that allow ETH to be staked in exchange for a tradable asset representing a portion of the staked ETH, known as Liquid Staking Derivatives (LSDs).

To date, Lido is the largest LSD provider with a market holding of around 5 million ETH. However, staking providers such as Lido, Coinbase and Binance now control the majority of his ETH market, revealing centralization issues.

Ethereum: Total Stake by ETH 2.0 Providers [ETH] - Source: CryptoSlate
Ethereum: Total Stake by ETH 2.0 Providers [ETH] – Source: CryptoSlate.com

As an asset towards decentralization, the ETH holdings amassed by the aforementioned ETH staking providers serve the narrative that ETH is too centralized and ultimately controlled by the companies with the largest holdings. increase.

With the upcoming Shanghai Upgrade integration, ETH investors and validators will withdraw their staked ETH in favor of positions that allow the share and value of staked ETH to be returned in the form of LSD. Get ready.

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