Ethereum shifted to a more energy-efficient proof-of-stake model in September, but there’s still one upgrade that needs to be completed to let users unstake their ETH from the network. It’s coming up next week—but the process could ultimately take weeks to complete, an analyst at crypto data platform Nansen told Decrypt.
Following September’s merge event, Ethereum’s transition will conclude with the launch of the Shanghai upgrade on April 12, which is paired with another upgrade called Capella.
The upgrades are hotly anticipated by users who staked ETH in the network—either as individual validators or through platforms like Lido Finance and Rocket Pool—as they will soon be able to withdraw their assets and accumulated rewards.
But Ethereum users may not be able to withdraw their funds immediately, or all at once. According to Andrew Thurman, a data analyst at Nansen, the length of the withdrawal queue could result in users having to wait several weeks to withdraw their funds.
“When you look at the fundamentals,” Thurman told Decrypt, “whatever the impact of withdrawals going live is, it’s going to play out over a period of weeks and not days.”
The Ethereum 2.0 upgrade process began in early December 2020 with the launch of the Beacon Chain, a parallel blockchain to Ethereum responsible for managing the staking process. Validators were required to stake 32 ETH to operate their own nodes and ensure the continual supply of blocks by processing transactions and maintaining the network.
To supplement demand, third-party decentralized platforms such as Lido Finance also let users stake their ETH without the need to manage their own validator nodes. In exchange for depositing ETH into the Lido Finance smart contract, users received a staked version of their ETH—an ERC-20 token known as stETH.
The amount of stETH a user received was equivalent to the amount of ETH they deposited, and the value of stETH remained pegged (albeit with fluctuations) to the value of ETH.
In the wake of the Shanghai upgrade, Thurman believes that the “value proposition of projects like Lido will slightly alter, but ultimately won’t change significantly.”
“Being able to use your staked ETH as a form of collateral in DeFi is hugely important for anybody who’s pursuing any kind of sophisticated interest or yield bearing strategy,” he said. “So, there’s still definitely a role for those tokens. But I think liquidity becomes slightly less important because withdrawals are open.”
To date, more than 18 million ETH—that’s about $33.6 billion worth—has been staked and locked into the Beacon Chain across 564,000 validators. The current annual percentage yield (APR) for validators is 4.4%, providing an interest-like return for stakers.
Thurman described Ethereum’s two-year journey to proof-of-stake as a “monumental event in the history of open source software,” and declared that drawing comparisons to a “plane changing engine midair is not much of an overstatement.”
As users look towards the withdrawal window opening next week, questions are being raised as to the expected timeline for accessing their funds.
According to the Ethereum Foundation, a maximum amount of 16 withdrawals can be processed within a single block, totalling a maximum output of 115,200 per day. Today, there are 564,000 validators on Ethereum’s Beacon Chain.
In theory, it would take about five days to process all withdrawals. Demand requests will almost certainly extend this timeline, however. Coinbase, for instance, announced that it “may take the protocol weeks to months [to] process unstaking requests.” Lido has said it could be early-to-mid May before it unlocks withdrawals, due to security audits.
Alex Esin, CEO of P2P.org—an institutional staking provider with more than $1.2 billion worth of staked assets—told Decrypt that he’s “not expecting to see a massive withdrawal spike” following the upgrade.
“Many who have already staked on the Beacon Chain have a high risk tolerance, and are not holding out for the withdrawal date,” he assessed. Esin added that stakers must weigh the prospect of withdrawing “against the growth expected from the Ethereum ecosystem and ETH strength expected over the next year.”
Even if there’s a rush to withdraw staked funds, Thurman said that much of that ETH may ultimately be re-staked so that holders can continue earning rewards. Exactly how much may be re-staked, however, is difficult to assess at this point.
“It’s like throwing darts,” Thurman said. “That’s why it’s so much fun to debate on Twitter—because people just genuinely don’t know.”
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