Ethereum on-chain data suggests ETH sell pressure could be a non-event after the Shanghai upgrade

The upcoming Ethereum Shanghai hard fork is scheduled to take place in March 2023, and the upgrade will complete the network’s transition to Proof-of-Stake (PoS), which began during the merger on September 15, 2022. previously locked ether (ETH) will gradually become liquid for the first time since December 2020.

According to Etherscan data on the network, over 16.6 million ETH is currently locked in the PoS staking protocol, which was valued at $28 billion as of February 16, 2023. Ethereum’s transition from proof of work (PoW) to PoS has begun to achieve its original goal, which was to make the Ethereum supply deflationary. In the 154 days following the merger, over 24,800 ETH was burned to make the token deflationary at 0.05% per year.

On the. On February 16, the total supply of Ether is 120 million, which means that a little over 10% of the supply will be unlocked, and the income reward will start with the Shanghai Update.

Let’s take a look at what on-chain metrics can help determine what might happen during the Shanghai upgrade.

Part of the locked ETH is liquid due to liquid derivatives.

In order to receive income rewards prior to the Shanghai update, investors had to lock up their ETH and run a trusted node. The minimum staking requirement of 32 ETH locked up is completely illiquid, meaning that traders had limited options for using these coins.

Liquid Derivatives (LSD) allow users to profit from staked Ethereum while retaining the ability to sell derivative tokens earned in the secondary market. The LSD protocols charged a fee and blocked native ether, providing users with another token representing a share in the pool.

Derivative liquidity rates didn’t gain prominence until Lido and other protocols started post-merger cash inflows. Since Ethereum staking began, liquid rates have outperformed illiquid ones. As of February 13, 57% of the delivered Ether is liquid compared to 43% illiquid.

With most of the locked Ether coming through LSD, investors now have access to liquidity, which could ease post-Shanghai selling pressure.

Very few players make a profit

Back in December 2020, when ether staking was launched, the price of ether fluctuated between $400 and $700. Conversely, many investors started betting when Ethereum reached its all-time high of $4,200. According to Binance:

“We note that a significant amount of ETH (around 2M) was staked at prices in the $400-$700 range – these are the earliest entrants in December 2020 – a group that is likely illiquid given that liquid rates were much less known at the time. “.

Due to Ether’s 69% correction after hitting an all-time high, many investors who staked their Ether are currently incurring unrealized losses.

The minority of stakers who make a profit are likely to have strong faith in the Ethereum network as the liquidity date was still unknown at the time. With a lot of losing players and those making profits likely to be long-term investors, the Ether price may not see a massive drop when the tokens can be unlocked.

Lido overtakes solo players

On January 2, 2023, Lido officially overtook MakerDAO as the highest total value recorded in decentralized finance. As of February 13, Lido is also the largest staking on Ether. With over 5 billion ETH in Lido, the protocol represents 29.2% of all organizations. It is noteworthy that almost 30% of all stakers have the opportunity to receive current liquidity through Lido.

Individual stakers who run nodes took risks by running nodes from home or with a small group. Individual players are likely to think that Ethereum is a long-term currency, as nodes come with costs and risks. Individual stakers currently make up 24.9% of all stakers.

Since nearly 55% of all ether staking is owned by either individual staking or Lido, the risk of falling Ether prices can be reduced.

While the on-chain data associated with the Shanghai fork may be optimistic for the Ethereum network, some analysts still predict the possibility of a sharp decline in the Ethereum price.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.