After the Ethereum Shanghai upgrade, what changes should we follow?

Ethereum will complete the Shanghai upgrade in April, opening the beacon chain staking ETH withdrawal feature. This is a hard fork of the Ethereum execution layer, expected to implement 9 EIPs. As of March 14, approximately 17.5M ETH have been staked, accounting for 15.25% of the total supply. Validators have averaged over 2 ETH in staking rewards, and after the Shanghai upgrade, more than 1 million ETH will flow into the market.

This article discusses the withdrawal design and related risks of Ethereum and LSD protocols after the upgrade in Shanghai, as well as the impact on ETH prices and the prices of tokens related to the LSD protocol.

Ethereum Official Withdrawal Process

Withdrawals are jointly upgraded and implemented by the execution layer and the consensus layer, divided into two rules: "partial withdrawal" and "full withdrawal". Partial withdrawal only extracts profits; full withdrawal exits the validator node, extracting all profits and staking. Necessary conditions will be automatically executed:

• Prerequisite: Validator has 0x01 Credential
• Partial withdrawal conditions: Validator is in Active status, balance > 32ETH
• All withdrawal conditions: Validator is in Withdrawable status

Each block can handle up to 16 withdrawal requests. After the validator meets the conditions and applies, a withdrawal list will be created, including the withdrawal order, receiving address, and amount. Withdrawals are initiated at the consensus layer and do not require gas fees.

Analysis of ETH Selling Pressure

According to the current staked ETH amount, full withdrawal will take about 5.06 days. However, considering:

1. It takes time to execute withdrawals, validators must wait at least 27.3 hours before they can withdraw.
2. Early staking users may be eager to withdraw ETH and rewards.
3. Some users need to completely exit due to regulatory reasons.
4. Validator attrition limit function restricts withdrawal speed

It is expected that there will be significant selling pressure 3-4 days after the upgrade in Shanghai, but the overall selling pressure will not be too severe. Most withdrawals will be "partial withdrawals".

Current Status and Withdrawal Design of the LSD Protocol

The LSD protocol's ETH staking volume accounts for 42.97% of the total, with Lido exceeding 30%. LST tokens are already circulating in the secondary market and showing good yield performance in DeFi protocols. With the Shanghai upgrade approaching, the overall liquidity of LST is relatively good, but it also tests the risk management capabilities of various projects.

Main LSD protocol withdrawal design:

• Lido: Set up two modes, Turbo and Bunker, to establish a withdrawal buffer.
• Rocket Pool: Introduces minipools, designs deposit pools to meet rETH redemption.
• Frax Finance: frxETH 1:1 redeemable for ETH, sfrxETH earns staking rewards
• StakeWise: Two mechanisms, Pool and Solo, V3 version addresses centralization risks.

Conclusion

The impact of the Shanghai upgrade on the LSD protocol is mainly reflected in:

1. Price changes of ETH, LSD tokens and derivatives
2. Withdrawal design tests various protocol technologies, users rearrange their layout.
3. Derive more staking-based DeFi protocols

Possible future occurrences:

• LSD-based index token
• Futures product pegged to ETH yield
• Staking ETH-based stablecoin project
• High-yield lending protocol brought by re-staking

Users will pay more attention to withdrawal smoothness, staking rewards, permissiveness, and security. Protocols like Rocket Pool may experience rapid growth.