The Ethereum Shanghai upgrade is planned to be carried out in March this year. One of the items is the opening of ETH pledge unlocking on the beacon chain, which is the so-called EIP-4895. As of the time of writing, the total number of ETH pledges is approximately 15.85 million ETH, accounting for approximately 13% of the total ETH. The total number of active validators is 495,000, and the annualized interest rate is 4.2%. Many people are therefore worried that after the open staking is unlocked, will there be a lot of selling pressure? There are also bears who believe that the previous price of ETH in US dollars is low-cost, and there will be good US dollar-based profits after unlocking, so the possibility of choosing to sell is also very high.

How to look at this problem?

Judging from the current situation, there is a high probability that it will not bring a lot of selling pressure (of course, future price changes will depend on more factors, and here we only discuss the single event of potential selling pressure). From nine aspects:

1. Unlocking and withdrawing funds are gradually released, not flooding into the market all at once.

Currently, a gradual unlocking model is adopted. According to the current situation, theoretically, the upper limit of daily withdrawals is about 55,000 ETH. Ethereum can activate approximately 7.55 validators per epoch (total number of validators / 65,536), and there are 225 epochs per day. That is to say, currently about 55,000 ETH can be unlocked at most every day.

In addition, the withdrawal rate will be adjusted based on the total amount of pledged ETH to prevent instantaneous large outflows.

2. Most of the users who participated in early staking are long-term supporters of Ethereum

Those who were willing to take greater risks and uncertainties to enter the ETH staking market in the early days are all user groups with greater risk preferences. Most of them are relatively long-term and staunch supporters of Ethereum. These people are in the current bear market situation. Under the situation, relatively speaking, there is less willingness to sell.

3. Many staking users who were willing to withdraw have already withdrawn.

Most of the staking participants used Lido or through CEX, and some have completed withdrawals. For example, users who pledge through the Lido protocol can exchange their stETH into ETH through Curve, and can withdraw and unlock it without waiting for Shanghai to upgrade. From the data point of view, stETH saw good discounts for many times last year. In other words, some users who wanted to exit sold stETH and exchanged it for ETH. This also includes the fact that some institutions have also completed the withdrawal of their stETH due to the impact of some violent incidents.

4. The openness of unlocking may be more attractive to institutions or large investors.

With the opening of pledge unlocking, it is possible to attract more institutions or large investors to enter. First, this function itself brings confidence to more users; second, it can provide these users with better exit channels. There is no need to worry about exit liquidity or discount exit; thirdly, these users also need to obtain relatively stable income in the bear market (currently the ETH currency-based annualized income can reach 4.2%, although it is not comparable to DeFi during the bull market). But given the current market conditions, this yield is still attractive for long-term supporters). If you think about it, after staking is opened, there may be a slight decline in the short term, but the overall trend is upward, and it is possible that it will exceed 20% of the total amount of ETH in about a year.

5. The cost of entry for ETH pledgers is not low

According to the bearish cost theory, the average cost of entry is actually not low. The cost of the first batch of pledged ETH is around $500, but the increase in pledges occurs gradually. According to a rough estimate (no precise data here), a large proportion of staking costs are approximately more than $1,500, which is higher than the current market price.

6.ETH’s asset nature has changed fundamentally after PoS

First, ETH is currently gradually heading towards deflation, which has a huge impact on ETH. After the ETH merger, it has been 112 days so far. Since then, a total of 4,248 ETH have been added (as of writing). If there is no merger, then in these 112 days, 1,332,883 ETH will be issued, worth approximately US$1.66 billion, which means that the potential selling pressure will be reduced by approximately US$15 million per day. ETH holders, even if they keep it in their wallet and do not participate in staking or profit activities of the DeFI protocol, can still capture the value of its ecological growth.

Second, ETH can earn income through staking. The current annualized return is approximately 4.2%. When ETH gains staking benefits, ETH itself not only serves as the security supporter of the entire network, but also captures the benefits of its ecological growth. ETH has fundamentally changed. As the ecosystem grows and it provides larger-scale security services to L2 and its network, ETH will eventually benefit. In other words, ETH has become the real underlying asset of the ecosystem. It is supported by more and more usage scenarios. When these networks reach a certain level, ETH will have the opportunity to generate currency premiums. It will not only be a payment medium within the ecosystem, but will also gradually have the attribute of value storage. From this point alone, it is also competitive with BTC.

In addition, compared with other chains or projects, such as BTC, Solana, etc., the addition of ETH has been very small. As of the time of writing, according to MoneyPrinter statistics, the annual new rate of BTC is 1.8%, Dogecoin is 3.58%, Solana is 6.43%, and ETH is currently only about 0.01%. Its new rate is about 180 times lower than BTC; low More than 350 times higher than Dogecoin and more than 600 times lower than Solana. The new rate of BTC and Solana is not high, and there are many that exceed 10%. For example, the annual new rate of Osmosis is 39.2%; Balancer is 13%, Curve is 10.21%, etc.

If not calculated based on the new rate, but calculated based on the daily new value, Ethereum is also among the lowest. Calculated based on the current situation, the current daily new value of BTC has reached more than 15.8 million US dollars (more than 470 million US dollars per month); Solana has added more than 1.27 million US dollars per day (more than 38 million US dollars per month); Dogecoin has added more than 1.27 million US dollars per day (more than 38 million US dollars per month); The daily increase is more than 950,000 US dollars (the monthly increase is more than 28 million US dollars); the Avalanche is the daily increase of 690,000 US dollars (the monthly increase is more than 20 million US dollars). As of the time of writing, the average daily new addition of Ethereum after the merger is about 38 ETH, which means the daily new value is less than 50,000 US dollars, and the new value is about 1.5 million US dollars a month. That is to say, the daily new value of ETH is more than 300 times lower than BTC; more than 25 times lower than Solana; 19 times lower than Dogecoin; and more than 13 times lower than Alalanche. It is currently a bear market and gas consumption is relatively low. If the market becomes active in the future, the daily deflation of Ethereum will also be very considerable.

Only the current situation, both the new rate and the daily new value of ETH are much lower than other public chains, and also much lower than BTC.

7. Community consensus of Ethereum

Ethereum itself has a developer base, an ecological base, and a user base. Based on this, a relatively strong community consensus has been formed. This community consensus, as the Ethereum ecosystem continues to develop, including L2 gradually surpassing most public chains, Ethereum's role as the most basic settlement layer and security provider in the encryption field will only strengthen its moat. The fact that there is a sufficient moat will gradually be seen by more institutions and users.

8. ETH pledge yield is a dynamic game

The smaller the amount of ETH pledged, the higher its yield; if the amount of pledged drops to a certain level and its yield increases, it will attract people to enter. This relatively stable income will appear more attractive in a bear market. Therefore, there is also a dynamic balance here.

When the amount of ETH pledged is 1 million, the annualized return can reach 18.1%; when the amount of ETH pledged is 10 million, the annualized return is around 5.72%; when the amount of ETH pledged is 12.5 million, the annualized return is 5%; when it reaches 30 million, the annualized return is around 3.3%.

9. In addition to ETH staking unlocking, the Shanghai upgrade also has other upgrades.

The Shanghai upgrade not only includes ETH staking unlocking, but also other upgrades, which are also beneficial to the long-term development of its ecosystem. For example, EIP-3651 can help miners save gas costs and speed up miner transactions; for example, EIP-3855 can also reduce gas consumption; EIP-3860 can support larger contracts and support the deployment of contracts with richer functions, which can help developers launch more Imaginative dAPP; EIP-3540 (EVM Object Format EOF) V1 supports the separation of contract code and data, simplifying contract interaction, etc.

Conclusion

Generally speaking, even if Shanghai upgrades and opens the withdrawal function, the impact on ETH selling pressure will be limited. As the Shanghai upgrade event itself, it is conducive to the long-term development of the Ethereum ecosystem and can be regarded as a long-term positive event.

Finally, I need to remind you that although the Shanghai upgrade will not bring major short-term selling pressure, it is two different things from the price fluctuation of ETH itself. If a black swan event occurs during this period, even if there is no pledge unlocking, it will have an impact on the market.

Risk warning: All the above analysis is only a one-sided observation of technology and market, and may not be correct. Please be sure to maintain your own judgment and do a good job in risk control.