Analysis of Selling Pressure Impact from Ethereum Shanghai Upgrade Staking Unlock

Ethereum plans to implement the Shanghai upgrade in March this year, one important aspect of which is the opening of ETH stake unlocking (EIP-4895). As of now, the total amount of ETH staked is approximately 15.85 million, accounting for 13% of the total supply, with the number of active validators at 495,000 and an annualized yield of 4.2%.

Some opinions suggest that the unlocking of stakes may lead to significant selling pressure. However, a comprehensive analysis indicates that this concern may be overstated. Here are a few key factors:

1. Gradual Release Mechanism

After the upgrade in Shanghai, ETH withdrawals will adopt a gradual release model. A maximum of approximately 55,000 ETH can be unlocked daily, and this number will be dynamically adjusted based on the total stake to prevent sudden large-scale outflows.

2. Characteristics of Early Participants

Initially, users participating in ETH staking were mostly long-term supporters with a high risk tolerance. This group may be more inclined to continue holding in the current market environment.

3. There are already exit channels

Some users who wish to withdraw have already completed their exits through other means, such as through liquidity staking protocols or centralized exchanges. Last year, stETH experienced a discount, and some institutions took the opportunity to exit.

4. Attractiveness to Institutions

The staking unlock feature may actually attract more institutions and large holders to participate, as it offers more flexible exit options, enhances overall confidence, and provides stable returns during bear markets.

5. Stake Cost Considerations

Although the cost for the earliest participants was lower, the average cost of staking ETH for most may be higher than the current market price, which to some extent reduces the motivation to sell.

6. Change in the nature of ETH assets

Since the merge, ETH has gradually moved towards deflation, with a significant reduction in daily new supply. The staking rewards have made ETH the core asset of the ecosystem, providing additional value to holders. Compared to other crypto assets, the inflation rate of ETH has dropped to a very low level.

7. Community Consensus

Ethereum has a strong developer, ecosystem, and user base, forming a solid community consensus. With the development of the L2 ecosystem, its position as the foundational settlement layer and security provider will be further consolidated.

8. Dynamic Yield Rate

The ETH stake yield will be dynamically adjusted based on the total amount staked. If the amount staked decreases, the increase in yield will attract new participants, forming a self-balancing mechanism.

9. Comprehensive Upgrade Content

The Shanghai upgrade includes not only stake unlocking but also other optimizations, such as reducing gas consumption and supporting more complex smart contracts, which is beneficial for the long-term development of the ecosystem.

Overall, the selling pressure brought by the Shanghai upgrade may be limited. However, it is important to note that the price movement of ETH is influenced by multiple factors, and the unlocking of stakes should not be directly linked to short-term price fluctuations. Investors should maintain independent judgment and implement effective risk management.