The highly anticipated Shapella update for Ethereum is slated to be live on April 12, 2023. For the first time since Ethereum staking began in 2020, stakers will be allowed to unstake their deposits. This critical upgrade contains modifications to the execution layer (Shanghai), consensus layer (Capella), and Engine API. Shapella’s influence on the ETH price is unknown since liberated money might contribute to selling pressure.
Introducing Shapella: Ethereum’s Anticipated Upgrade
Shapella is Ethereum’s much-awaited upgrade, derived from “Shanghai” (the host city of the Devcon 2 conference) and “Capella” (the brightest star in the Auriga constellation). It will affect both the consensus (Capella) and execution (Shanghai) levels.
Shapella’s main feature is the activation of Ethereum “unstaking” from deposit contracts, which allows stakers to withdraw their ETH. The upgrade also contains a few small changes to Ethereum’s software, particularly concerning withdrawal operations.
In addition to enabling the withdrawal of staked ether, the Shapella upgrade also aims to reduce transaction costs for certain activities. These upgrades have already been tested in various testnets, and have been shown to be effective in reducing the cost of gas fees for transactions.
You can find all the details of the Shapella update in the article we published last month.
Update’s Impact on Price Raises Curiosity: Sharp Sales May Come
According to a recent report by Glassnode, dated April 9, regulatory pressures and updates have kept deposit activity at low levels on major centralized exchanges like Coinbase, Binance, and Kraken. These exchanges have lost a significant amount of market share to the liquid staking platform Lido, which now represents about one-third of the staked ETH.
Lido, a rapidly growing platform, holds approximately 6 million ETH on its platform, totaling $11 billion. The rise of Lido has been attributed to the convenience and flexibility it offers for users to stake their ETH without needing to run their own validator nodes. This has made the staking process more accessible to a wider range of users.
As Ethereum continues to grow and evolve, the network is preparing for the next phase of its development. With the upcoming update, validators will be able to withdraw their staked 32 ETH. Ethereum currently has over 18 million tokens staked, representing 15% of the total ETH supply. This has led to concerns that there may be sharp sell-offs after the update, which could potentially impact the stability of the Ethereum network and its market value.
Ethereum remains one of the most significant uncertainties in regulatory efforts in the United States. The continuing dispute over whether Ethereum should be categorized as a security or a commodity has drawn regulatory authorities’ attention to the cryptocurrency. The US Securities and Exchange Commission (SEC) considers Ethereum to be a security, although the Commodities Futures Trading Commission (CFTC) does not.
The Ethereum ecosystem and its users have faced issues as a result of regulatory ambiguity. Deposit activity may continue to be impacted until a clear and uniform regulatory framework is developed, and the market dominance of big centralized exchanges may continue to diminish in favor of alternative platforms like Lido.
Merging of The Shanghai Upgrade and Capella: Shapella
Theoretically, the Shanghai update only affects Ethereum’s execution side. On the consensus side, Capella is the simultaneous upgrade. As a result, the two names were combined to become “Shapella.”
This is significant in the context of what to call the Ethereum upgrade because it has distinct names on each tier. The Shanghai update will be applied to the execution layer, while the consensus layer will be known as “Capella.” As a result, developers have aptly dubbed the entire thing “Shapella.”
To comprehend what the two levels are, one must first understand Ethereum prior to the recent update, the Merge.
The execution (application) layer was another name for Ethereum’s previous proof-of-work blockchain. When Ethereum launched its proof-of-stake (PoS) chain, often known as the consensus layer, developers intended to use just the PoS chain. But because it felt like too difficult a task for developers, they opted to fuse the two chains together – hence the “Merge.”