Shanghai could help Ethereum dominate Layer 1 and benefit liquidity staking protocols

Ethereum’s upcoming Shanghai upgrade will allow users to withdraw their staked Etherincreasing the liquidity and competitiveness of the network while increasing its pledge rate to approach its competitors.

copy Shanghai upgrade is an Ethereum hard fork scheduled for March. It implements five Ethereum improvement proposals featuring EIP-4895, which allows users to withdraw locked tokens representing ether from the beacon chain.

The ability to withdraw staked ether can increase market liquidity and make funds more accessible to users. Ethereum’s liquid staking platform, created primarily to ease the blockchain’s stringent staking and locking requirements, could also benefit from the upgrade.

Since the Ethereum network switched to PoS in September 2022, increasing the percentage of Ether staked has become important to help secure the protocol. But with no way to withdraw, many are hesitant to stake their ETH.As a result, only about 15% of ETH is currently available betwhile all other major Layer 1 networks have more than 40% stake.

ShanghaiGet access to top crypto assets with market capitalization staking. Source: Staking Rewards.

according to share On The DeFi Investor’s twitter, many investors will choose the liquid staking option after upgrading in Shanghai, because they can use liquid staking derivatives on other decentralized financial networks without losing staking profits.

DeFi investors say that once staked ETH can be withdrawn, liquidity staking providers could see a significant increase in revenue, which could have a positive impact on the price of their tokens. .

Additionally, intense competition among these platforms may benefit users through lower fees and perks to retain customers.

Lido is the largest provider of liquid ETH and the market leader in this space.Other notable liquidity staking providers include Rocket Pool, Ankr, Coinbase, and Frax Finance, all of which are regulated Expected to increase usage After Shanghai.

Ethereum Takes the Lead in Liquidity Staking

Since Beacon Chain officially opened deposits at the end of 2020, deposits from all staking providers have shown an upward trend, showing a strong and continuing interest in ETH staking after the upgrade in Shanghai. While Lido has the largest market share of liquid staking on Ethereum, competition between parties remains fierce, with various vendors demonstrating product enhancements, and when any one staking provider becomes the central point of the Ethereum network, It is possible to reduce risk.

ShanghaiThe total amount of ETH staked on the total number of Ethereum validators. Source: Dune/@hildobby.

Liquidity staking can also be applied to tokens of other Layer 1 networks. Example: Polkadot’s DOT Liquidity collateral can be done through Ankr or Cosmos’ ATOM on StaFi and Solana’s SOL on Lido and Marinade Finance.

While competing networks have their own refreshing liquidity staking solutions, Ethereum currently holds the lead with more than 7 million ETH liquidity staked across all sources. In comparison, there are at least 3.6 million SOL pledged with 1.21 million SOL through Marinade Finance liquidity and 2.39 million SOL pledged through Lido liquidity.

ShanghaiCompare liquid ETH balances by provider.Source: Dune

Staking pools and liquidity staking give Ethereum an edge over its competitors by increasing the interoperability of decentralized applications in the ecosystem. The growing number of participants strengthens the security and utility of all protocols using Ethereum’s PoS consensus mechanism.

Providers like Lido and Rocket Pool remove the barrier to entry for ETH holders, eliminating the need to commit 32 ETH or run a validator.

This brings Ethereum closer to networks like Solana, which have a lower barrier to entry for staking.

While centralization of ETH via third-party collateral has raised concerns about decentralization at Lido and Coinbase, the total number of validating nodes on the network has increased by around 9% over the past 30 days, bringing the total number of Ethereum nodes to 11,786 at writing At the time of this article. This means that the centralization problem increases and decreases at the same time.


The total number of Ethereum nodes from February 6th to March 8th, 2023. Source: Etherscan/Ethereum Node Tracker.

As the Shanghai upgrade removes staking risk by increasing liquidity and reducing lock-up requirements, institutions can also more actively consider Ethereum staking and ETH as an asset.

However, the U.S. Securities and Exchange Commission (SEC) recently restricted pledge agreements that it considers investment products. While providers like Lido are working towards greater decentralization, it remains to be seen whether they will be classified as securities by the SEC and how an adverse ruling will affect the market. Shuffle ETH staking providers.

There is also a volatile macro outlook for the crypto market in 2023, which could lead to many ETH holders not staking but selling on the open market after the upgrade in Shanghai — although the Ethereum Foundation caps the amount of ETH that can be sold per day .

  • Shanghai upgrade to withdraw staked ETH scheduled for mid-April 2023
  • Analyst Claims Ethereum’s Shanghai Upgrade Won’t Lower ETH Price

board take

As reported by Cointelegraph

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