Ethereum successfully made the switch to a proof-of-stake (PoS) consensus method in September, which meant that stakers took the place of miners as network validators. A user must deposit 32 ETH into a deposit contract in order to become a staker.

Even though the mainnet transitioned just last year, the staking contract has been operational since November 2020, when it was used as part of the PoS test network. Despite users locking their coins into the contract, withdrawals have not been allowed yet, with only deposits being accepted.

The upcoming hard fork of ETH, “Shanghai upgrade”, will allow investors to withdraw their coins from the Ethereum staking contract, bringing about a long-awaited change.

The market is now naturally concerned about how the abrupt release of these coins may affect the ETH economy. The ETH Shanghai upgrade will go live later today, and the on-chain analytics company Glassnode has laid down the many scenarios that could occur afterwards in its most recent weekly report.

Investors in Shanghai will be able to make partial or complete withdrawals. The first type comprises automatic withdrawals of the staking rewards that validators have accrued, whilst the second type entails a full exit of the staker’s locked-in sum.

Despite not yet being able to withdraw their funds, users have been able to sign an advance voluntary exit note. Following the hard fork’s activation, the network will search through all validators to determine who has signed these exit messages.

Those who have signed them will be able to withdraw completely, while those who haven’t will only be able to do so in part. But the scanning procedure mentioned here doesn’t happen instantly. Considering the current number of validators, the network will need up to 4.5 days to finish the process. Currently, a large number of validators have not updated their withdrawal credentials yet.

According to Glassnode, “Currently, around 300k validators need to update their withdrawal credentials, which is only possible after the Shanghai/Capella update”. This information led the analytics company to estimate that the automatic scanning procedure would take a maximum of two days.

The locked contracts currently have staking rewards in the amount of 1.137 million ETH ($2.1 billion). As was indicated earlier, not all investors have updated their withdrawal credentials, so ideally, these awards should be immediately withdrawn as soon as the upgrade goes live. 

It turns out that the correct Ethereum validators only control 25% of the total rewards, which means that only roughly 276,000 ETH should be immediately withdrawn in the two days following the hard fork.

1.137 million tokens will be withdrawn over the course of 4.5 days if all validators update their credentials as soon as the upgrade goes live. The firm states that there is a daily cap of 1,800 validators who can participate in the complete withdrawal scenarios. This indicates that only a maximum of 57,600 ETH ($109.4 million) will be unstaked immediately following the hard fork.

The real amount that would be unstaked, however, drops to roughly 45,000 ETH ($84 million) based on the number of validators who have so far signed the voluntary exit message.

Glassnode’s best estimation is that around 170,000 ETH ($323M) will be sold in this event after taking into consideration numerous market conditions (including the fact that not all withdrawals will actually wind up being sold). However, this sum is not all that significant.

Even the most extreme situation, in which 1.54 million ETH were sold, is only on par with the typical weekly exchange inflows, which means that if this scenario plays out, the inflows would double. Similar inflows were seen not long ago, and the price responded with a drop of about 8.7%.

Although there has been a noticeable fall, it is still much below the level seen during the FTX crash seen in November of last year, when the price fell by almost 30.2%.

Glassnode concluded by saying, “Given the Shanghai upgrade is widely expected and understood, based on this analysis, the unlock event is on a similar scale to day-to-day trade for ETH markets, and is therefore unlikely to be as dire as many speculate it to be.”

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