Executive Summary
This report estimates the volume of staked ETH likely to be withdrawn and sold immediately following the Shanghai Upgrade. After analyzing various staking cohorts and their motivations for selling unstaked ETH, we project a total of 170K ETH intended for sale post-upgrade.
Key predictions:
- Only 100K ETH ($190M) from cumulative rewards will be withdrawn and sold.
- Validator exits may double, but daily unlocks remain capped. Just 70K ETH ($133M) is expected to become liquid.
- Even under extreme scenarios, selling pressure would align with typical weekly exchange inflows, minimizing price impact.
The Shanghai Upgrade
Scheduled for April 12, 2023, the Shanghai/Capella hard fork enables withdrawals of ETH staked in Ethereum’s Proof-of-Stake (PoS) consensus mechanism. With 18M ETH ($34B, 15% of supply) currently locked, concerns persist about potential market flooding.
This report addresses three critical questions:
- Which stakeholders are most likely to withdraw?
- What volume of ETH will be unlocked?
- How significant will the selling pressure be?
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Mapping Ethereum’s Staking Landscape
Key Participants:
- Depositors: Entities or individuals sending 32 ETH to activate validators.
- Validators: Virtual entities proposing/verifying blocks for rewards.
- Nodes: Physical hardware hosting validator software.
Our analysis focuses on depositors—the ultimate decision-makers on withdrawals.
Stakeholder Cohorts:
We categorize depositors by:
- Tenure: Time active (pre-genesis to recent).
- Size: Validators per address (1 to 500+).
- Profitability: Unrealized P/L based on deposit timing.
- Organization: Individual vs. institutional providers (e.g., Lido, Coinbase).
Institutional vs. Individual Stakers
- Institutional Providers (e.g., Lido, Coinbase) dominate, holding ~55% of staked ETH.
Individual Stakers show bifurcation:
- Smallholders ("Shrimps"): Single validators (75% of individuals).
- Whales: 500+ validators (13.5% of individuals).
Notably, 75% of non-institutional stakers are underwater, yet large holders face low sell pressure due to high conviction.
Simulating Post-Shanghai Withdrawals
Partial Withdrawals (Skimming Rewards):
- 113.7M ETH ($21B) in rewards await unlock.
- Automatic withdrawals (2–4.5 days) prioritize validators with updated credentials (44% currently eligible).
Estimated Sell Pressure:
- Best Case: 76K ETH ($141M) sold.
- Worst Case: 162K ETH ($300M) sold.
Full Withdrawals (Exiting Validators):
- Daily cap: 57.6K ETH ($109M) due to churn limits.
- Current queue: 45K ETH ($83M) from exited validators (mostly individual stakers).
Total Supply Impact Scenarios:
- Extreme: 1.54M ETH ($2.9B) liquidated.
- Current: 312K ETH ($592M) liquidated.
- Projected: 170K ETH ($323M) liquidated.
Even the extreme scenario doubles weekly exchange inflows but remains below panic-driven events (e.g., FTX collapse).
FAQs
1. Will unlocked ETH flood the market?
No. Daily churn limits and institutional re-staking (e.g., Lido) will buffer sell pressure.
2. Which stakers are most likely to sell?
Smallholders with unrealized losses, though they represent a minor share (~7.6K ETH).
3. How long will withdrawals take?
Partial: 2–4.5 days. Full: Gradual (57.6K ETH/day max).
Conclusion
The Shanghai Upgrade’s economic impact will likely be overstated:
- Institutional re-staking will absorb most rewards.
- Validator exit queues prevent sudden liquidity dumps.