Shanghai-Capella hard fork, also known as Shapella, is scheduled to go live on April 12 at epoch 194,048 around 22:27 UTC. The highly anticipated upgrade, the first of such a kind since September’s Merge, is set to enable validators to withdraw staked Ether and earned rewards, increasing its circulating supply and leading to a drop in prices.
However, experts differ on the exact amount of staked ETH that will be withdrawn and sold immediately after the Shapella upgrade. According to Glassnode, the hard fork is unlikely to create significant sell-side pressure for Ether.
“Even in the extreme case where the maximum amount of rewards and stake are withdrawn and sold, the sell-side volume still falls within the range of the average weekly exchange inflow volume. Therefore, we conclude that even the most extreme case will have an acceptable impact on the price of ETH,” analysts estimate.
Data shared by Glassnode found that only 253 depositors are currently waiting to exit their stake. Out of this group, the majority are either solo-stakers or stakers from the early days of Beacon Chain, so their withdrawals are most likely due to changes in their technical setup and not exiting their position, analysts conclude.
And even if all these depositors really wanted to exit, Ethereum has mechanisms in place to limit the amount of Ether that can be withdrawn from the pool at once, Glassnode pointed out.
Before Shapella, staking ETH was a one-way street, as validators could deposit their Ether to Beacon chain but were unable to exit. Today’s upgrade will activate two types of withdrawals — full and partial. A full withdrawal enables a validator to exit staking completely and withdraw their full ETH balance, including 32 ETH needed to set up a validator node and all accumulated rewards. In turn, partial withdrawals, as one could guess, would allow validators to only transfer the rewards above the initial 32 ETH.
According to Ethereum.org, a maximum of 16 partial withdrawals can be processed in a single block, which amounts to 115,200 such transactions per day. At the same time, the number of full exits is limited to 1,800 a day (under the current churn limit of 8 per epoch), since validators need to be voted in by other active validators to enter the exit queue, and such voting occurs every 4 hours. However, the number of validators that are accepted to the queue every epoch depends on how many validators are staying active, so the real numbers are likely to be lower.
Glassnode estimates that between 76k ETH ($141m) and up to a likely maximum of 162k ETH ($300m) will flow to the market from partial withdrawals and 57.6k ETH ($100m) from full withdrawals. Just to put these numbers into perspective, ETH recorded nearly $2 billion in daily trading volume at the time of writing.
According to JPMorgan, the Shapella upgrade will likely raise Ethereum’s staking ratio in the medium term, which would greatly reduce ETH circulating supply, pushing the price upwards.
“Assuming the staking ratio converges over time to the 60% average of other major PoS networks, the validator number could increase from 0.5 million to 2.2 million and the yield would fall from 7.4% current to around 5%,” analysts led by Nikolaos Panigirtzoglou wrote in a February report quoted by CoinDesk.