Ethereum blockchain upgrade to unlock $33 billion

Cryptocurrencies

Investors are finally set to access more than $33 billion worth of ether this week under a planned revamp of the blockchain.

A new software upgrade to the Ethereum blockchain, called Shapella, will allow market participants to redeem their “deposited ethers” — coins they’ve deposited and unlocked on the network over the past three years — for interest.

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About 15 percent of all Ether is staked, totaling $33.73 billion in market value, according to data from Dune Analytics.

Up to 1.1 million ether will be ready for withdrawal in the week after the renewal of the blockchain, estimated Sreejith Das, CEO of Attestant, a company that facilitates the staking of ether. That would be worth nearly $2 billion, based on the last Ether price of around $1,860.

Traders hunting for an edge are now trying to figure out how this sudden drop in ether might affect prices. However, it is difficult to judge, said Robert Quartly-Janeiro, chief strategy officer at crypto exchange Bitrue.

“The only thing that is certain is that the Shanghai hard fork will bring some short-term volatility,” he added.

Some corners of the market are concerned that unlocking coins could lead to massive withdrawals and a wave of selling, which could quickly push prices down.

Still, only about 29 percent of all staked ether by volume is currently in profit in dollars, which would mean most of it would be sold at a loss, according to Bundeep Rangar, CEO of blockchain investment firm Fineqia International.

“It therefore seems unlikely that much of the staked ether will be sold,” Rangar added.

“Last piece of the puzzle”

Shapella would mark the end of a long wait for investors who had chosen to deposit ether in exchange for a return since the staking project began in 2020.

Ethereum developers paved the way for this development with a major upgrade called “Merge” last year, which stopped energy-intensive mining and moved to a “proof-of-stake” system where ether owners unlock 32 coins to check new records of the blockchain, earning new ether on top of their “staked” coins.

Until the planned revamp this week, investors looking to stake coins had to deposit a minimum of 32 Ether at a time (worth $59,520 at current prices) for an indefinite period, a hefty sum beyond the reach of the average retail investor.

“Prior to Shanghai, many people and institutions probably chose not to stake their ether because, once they did, it would have been locked up for an indefinite period of time, which was risky,” said Dave Weisberger, CEO of Digital Asset Trading . platform CoinRoutes.

After the upgrade, the staked ether will no longer be locked up on the blockchain, so investors may be more willing to stake coins.

The market capitalization of tokens behind projects like Lido Finance and Rocket Pool, some of the biggest projects that provide liquidity for crypto stakes, has risen nearly sixfold to $2 billion and fourfold to $875 million, respectively, this year, according to CoinMarketCap, on expectations of further growth.

“It is likely that in the long term the amount of ether staked will increase, especially compared to the percentage of supply that is staked for other digital assets such as Solana, Mathic and Ada,” said Rangar at Fineqia.

So what kind of investors are likely to enter the market following the changes that Shapella has made?

“It will be those institutions that have been sitting on the sidelines quietly waiting for this last piece of the puzzle to fall into place, the ones that needed the ability to extract the ether before they were allowed to stake it,” said Das at Attestant.

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