Towards Shanghai

Ethereum is heading towards Shanghai - a major infrastructure upgrade that will enable stakers to withdraw their staked ETH for the first time since the Beacon Chain was introduced back in December 2020.

Mar 3, 2023

mins

Written by

Swell

GM Aquanauts - Ethereum is heading towards Shanghai - a major infrastructure upgrade that will enable stakers to withdraw their staked ETH for the first time since the Beacon Chain was introduced back in December 2020. Shanghai represents a pivotal moment for Ethereum and for Swell as we march forward to bringing you the best liquid staking experience in DeFi. In this post, we’ll walk through what this means for Ethereum, for liquid staking, and for Swell! So zip up your wetsuit and let’s dive in.

New world of liquid staking

Shanghai represents yet another milestone which will bring us closer to a more open, decentralized, and secure internet. After Shanghai, stakers will finally be able to their withdraw their staked ETH. This will shake up our industry in a major way and Swell will play a critical role in ushering in a new wave of stakers like you with the most attractive staking option in the market.

The landscape

At the time of writing, did you know that there is only ~16M ETH of ~122M ETH staked? This represents only a small percentage (~13%) of all ETH in circulation. We are just at the beginning and up until Shanghai, deposits into the consensus layer have been a one-way road. Interestingly, approximately, three-quarters of these deposits were staked through an identifiable on-chain party with the remaining being unidentified, although it is likely to be composed of solo stakers. (Shout out to all the solo stakers out there doing their bit to secure Ethereum).

Importantly though for our protocol, Shanghai is basically a rising tide that will lift our liquid staking boat. Consider the fact that we are still in a relatively early state of affairs with Ethereum and even though the Merge has since passed, we’re still in pre-Shanghai mode today. On top of that, it was only recently that the Core Devs made the announcement that took many by surprise that withdrawals would be prioritized and here we are today.

The crazy thing is that liquid staking at this point in the cycle has shown tremendous product market fit. LSTs represent - and will continue to represent - the most popular way for people to stake.

Fun fact - liquid staking in aggregate accounts for a commanding ~32% of all staked ETH. Not all LSTs are built the same, but we’re confident that we have something that stakers will really like with our new and improved protocol. (More details and alpha leaks to come soon on this.)

Anyhow, that figure steadily growing as more ETH is staked. As for the rest of the landscape, it is composed of centralized exchanges (CEXs) at~28% as well as non-liquid staking-as-service providers, which account for ~16% of all staked ETH. Much of these stakers are DeFi curious users who we expect will come to the decentralized side soon enough, as well as institutions who are waiting on something that will suit their specific needs / wants out of an LST.

For the first time ever, stakers who have already deposited into various protocols and companies will now be able to re-assess where they’ve chosen to stake. Before that, it is no wonder that TVL for existing incumbents continued to climb as the primary market for withdrawals was never possible. Well, that’s about to change with Shanghai.

What this means for Ethereum and for Swell

Looking at the bigger picture, the enablement of withdrawals is a momentous event in Ethereum and in our DAO. The net effect is all positive news with increased staking participation which in turn ups the economic security to Ethereum. (Always a good thing.) Further, the ability to withdraw your staked ETH means that we will see a shift in movement in funds that were otherwise locked.

With what is happening in the regulatory and policy environment, we forecast a directional shift towards liquid staking options like Swell that prioritize decentralization and a non-custodial means to stake ETH. The DAO will do its best to position itself to ride the wave that we’ve been seeing for a long-time now with more staking just over the horizon.