As the March 2023 Ethereum Shanghai hard fork looms, traders predict it could lead to a sharp sell-off in ether. However, a recent report from Binance suggests that on-chain data does not support this prediction.
This upgrade will be the final step in the network’s transition from Proof-of-Work to Proof-of-Stake starting with the Merge on September 15, 2022. After the Shanghai upgrade is implemented, previously locked Ether will gradually become liquid for the first time since December 2020. More than 16.6 million ETH is currently locked in the proof-of-stake protocol, worth $28 billion by February 16, 2023.
On-chain Etherscan data shows that the Liquid Staking Derivatives (LSD) protocol charges a fee and locks native ether, allowing users to benefit from staked ether while retaining the ability to sell derivative tokens on secondary markets. As of Feb. 13, 57% of staked Ether was liquid, while 43% was illiquid, with the majority of locked Ether acquired via LSD. That means investors now have access to liquidity, which could ease selling pressure after Shanghai.
While some traders predicted that ethereum prices could drop sharply after Shanghai, the data suggests that the current profitable minority shareholders may be firm believers in the ethereum network, as the date of liquidity at the time was still unknown. With a large number of stakers at a loss and those in profit likely to be long-term investors, Ether’s price may not see a significant drop when tokens are able to unstake.
Lido is now the largest staking entity in Ether, accounting for 29.2% of all entities with more than 5 billion ETH staked. Solo stakers running nodes currently represent 24.9% of all stakers. With nearly 55% of staked Ether held by independent stakers, or Lidos, the risk of an Ether price crash may be reduced.
Ethereum’s transition from proof-of-work to proof-of-stake has begun to achieve its original goals, even with a deflationary supply of ether. Over 24,800 ETH was burned within 154 days of the merger, deflation of the token by 0.05% per year. On February 16th, the total supply of Ether was 120 million, which means that slightly more than 10% of the supply will be unlocked, and the rewards will start with the Shanghai update.