The imminent Shapella upgrade is one of the most anticipated events in the crypto space this month. As a hard fork of Ethereum’s execution layer, the Shapella upgrade marks the first major upgrade of Ethereum since the Merge in 2022, and has thus captured the spotlight in the crypto industry.
According to Beaconcha.in, as of April 6, 2023, 18,012,968 ethers have been staked on the Beacon Chain and there have been 562,911 active validators, with an average of 34.01 ethers staked per validator.
Furthermore, data from the global crypto exchange CoinEx shows that, as of April 6, the ETH price stands at about $1,866, up more than 50% from around $1,200 at the beginning of the year. The surge indicates that as the Shapella upgrade approaches, ETH is experiencing continued price growth.
(Market statistics from CoinEx)
Besides its impact on the ETH price, what other factors make the Shapella upgrade significant? Today, we will focus on three major aspects.
I. Withdrawal of Staked ETH
In September 2022, Ethereum announced its transition to Proof of Stake (PoS). Prior to that, Ethereum used Proof of Work (PoW) and the mining mechanism to process and validate transactions, but after it shifted to PoS, the network no longer needs to rely on mining machines to solve computational problems. That said, to become validators on the PoS-based Ethereum, users have to stake 32 ETH. As the Merge combined the Ethereum mainnet with the Beacon Chain, users are currently unable to flexibly withdraw their staked ETH or staking rewards.
The upcoming Shapella upgrade will address the problem of withdrawal, as Ethereum will allow stakers to withdraw their ETH staked on Beacon Chain, as well as staking rewards, after the upgrade. This is also the biggest concern for ETH stakers.
II. Improving Layer2 Scalability
As the Ethereum ecosystem keeps on expanding, the transaction costs on the network have also risen. Although Layer2 solutions have somewhat optimized transaction speed and reduced transaction costs, Ethereum’s gas fees are still very expensive for many users. In this respect, the Shapella upgrade will reduce the gas fees for transactions on Ethereum.
Furthermore, Ethereum will also kick off the Surge upgrade this year, boosting its computing capacity via sharding. According to the Ethereum roadmap disclosed by Vitalik Buterin, Ethereum developers plan to release EIP-4844 in mid-2023, which will significantly improve the scalability of the network. At the same time, Layer2 will also become more scalable.
III. Empowering ETH Staking
Ethereum’s staking rate remains low, compared to the figures of many other public chains. Yet the high staking rates of other chains largely depend on their high APY, which can easily lead to a decline in the value of staked tokens. Ethereum, on the other hand, has become deflationary since the Merge. As the Ethereum ecosystem expands, Ethereum’s economic incentives for staking will remain sustainable and appealing, which will attract more institutional players. As a result, the Shapella upgrade is expected to catalyze a boom for ETH staking.
As the Shapella upgrade approaches, Liquidity Staking Derivatives (LSDs) have also been drawing attention, especially since the upgrade will allow stakers to withdraw their staked ETH and staking rewards. Right now, notable Ethereum staking projects include Lido, Rocket Pool, and FXS. In particular, Lido remains the undisputed leader in ETH staking, with a TVL of $11.16 billion and an APY of 4.3%, as of April 6.
It is clear that the Shapella upgrade will be remembered as a major milestone in the development of Ethereum. Moreover, it also signifies another huge step in improving the network’s scalability. Ethereum has listed all the EIPs included in the upgrade, which are divided into small improvements, EVM object format, and withdrawal. However, due to the already extensive content of the Shapella upgrade, many EIPs under consideration have not been included, which is why we still look forward to the Cancun upgrade.