Decentral Block Post

The Ethereum network’s planned Shanghai hard fork is nearly here. Planned for April 12, this is the first major upgrade since The Merge in September 2022. The “Shapella” upgrade (a combination of the two major proposals Shanghai and Capella), includes EIP-4895 which enables validators to withdraw staked ETH from the Beacon chain (Consensus layer) to the EVM (execution layer). The execution layer is the fun and friendly Ethereum users have come to know and love. 

Why is this a big deal? With just over 18 million ETH currently staked (valued at just over $33 billion at the time of writing), some of which has been locked up for years, the possibility of these tokens flooding an already teetering market is enough to get some holders ready to sell the news once withdrawals are enabled.

For holders who are both long and short ETH post-withdrawals, it’s likely to be a significant event, and on-chain activity suggests many feel the same: activity around liquid staking derivatives (LSDs) can be a useful gauge for what the market might do post-unlock.

Liquid Staking Derivatives could exert influence over Beacon Chain unlocks

What are liquid staking derivatives? They are a relatively new financial instrument born of DeFi that function like bearer instruments for staked ETH. Similar to how borrowing and lending protocols give users a share token to represent locked collateral (think Aave’s a-tokens), staking ETH generates a wrapped asset used to claim the equivalent amount of Ethereum from the staking platform. When a staker deposits ETH with major platforms like Lido, Rocketpool, Frax, Stakewise and now Coinbase, they receive a platform-specific flavor of LSD. Because staked tokens are illiquid, these wrapped assets allow stakers to continue earning rewards while securing the network without completely giving up the opportunity to participate in other activities within DeFi.

Liquid staking derivatives aim to solve these problems by allowing staked assets to be traded on secondary markets. This means that stakers could access the value of their staked ETH before the Shanghai upgrade enables withdrawals or, in the future, while maintaining their staked position. For example, a staker could use their wrapped ETH as collateral on another platform, or cover an unexpected expense by selling their LSD on a secondary market.

Ether (ETH) price has increased by 58% year to date, but it has far underperformed the market leader Bitcoin (BTC). In fact, the ETH/BTC price ratio has dropped to 0.063, its lowest level in 9 months. 

Analysts believe that the majority of the movement can be attributed to the Ethereum network's upcoming Shapella hard fork, which is scheduled for April 12 at 10:27 p.m. UTC.

The Ethereum network upgrade will allow stakers to unlock their Ether rewards or stop staking entirely. By April 11, over 170,000 ETH withdrawals were requested, according to the analytics firm Glassnode. However, the total staked on the Beacon Chain exceeds 18.1 million ETH, which has traders fearful until more information on ETH’s potential selling pressure becomes available.

Is the price impact of the Shapella fork already priced in?

The staking unlock was widely known and expected, so traders could have anticipated the movement. Some analysts have gone so far as to call the hard fork a "buy the news" event.

Using a meme, trader @CanteringClark is likely expressing dissatisfaction with the theory, but to invalidate the hypothesis, one must investigate potential reasons for ETH’s underperformance other than the much anticipated hard fork.

Ether (ETH) price has increased by 58% year to date, but it has far underperformed the market leader Bitcoin (BTC). In fact, the ETH/BTC price ratio has dropped to 0.063, its lowest level in 9 months. 

Analysts believe that the majority of the movement can be attributed to the Ethereum network's upcoming Shapella hard fork, which is scheduled for April 12 at 10:27 p.m. UTC.

The Ethereum network upgrade will allow stakers to unlock their Ether rewards or stop staking entirely. By April 11, over 170,000 ETH withdrawals were requested, according to the analytics firm Glassnode. However, the total staked on the Beacon Chain exceeds 18.1 million ETH, which has traders fearful until more information on ETH’s potential selling pressure becomes available.

Is the price impact of the Shapella fork already priced in?

The staking unlock was widely known and expected, so traders could have anticipated the movement. Some analysts have gone so far as to call the hard fork a "buy the news" event.

Using a meme, trader @CanteringClark is likely expressing dissatisfaction with the theory, but to invalidate the hypothesis, one must investigate potential reasons for ETH’s underperformance other than the much anticipated hard fork.

LayerZero is a communication method that facilitates cross-chain applications. Its low-level messaging capabilities enable the development of omni-chain functionalities on top of it, such as decentralized exchanges, money market protocols and numerous other DeFi applications that can benefit from cross-chain liquidity provisions.

The LayerZero platform was launched in September 2021 with Stargate Finance, a cross-chain bridge, as the first application built on it. The project raised $261 million in three funding rounds, doubling its valuation from $1 billion to $2 billionfrom March 2022 to March 2023.

Data analytics firm Nansen reported that decentralized applications (Dapps) built on LayerZero are some of the top-used entities across blockchain platforms like Aribtrum, Optimism, Ethereum, Binance Chain and Polygon.

In the first week of April, LayerZero-powered applications like Stargate and Radiant Finance were most used on Arbitrum and Optimism. On Polygon, Binance Chain and Ethereum, LayerZero and its applications ranked between 7th and 30th concerning user activity.

The primary motivation for the increasing adoption is the speculation around the native token airdrop of LayerZero. The team has included a mention of the ZRO token in their source code on Github, which makes an airdrop toward early users likely.

LayerZero is a communication method that facilitates cross-chain applications. Its low-level messaging capabilities enable the development of omni-chain functionalities on top of it, such as decentralized exchanges, money market protocols and numerous other DeFi applications that can benefit from cross-chain liquidity provisions.

The LayerZero platform was launched in September 2021 with Stargate Finance, a cross-chain bridge, as the first application built on it. The project raised $261 million in three funding rounds, doubling its valuation from $1 billion to $2 billionfrom March 2022 to March 2023.

Data analytics firm Nansen reported that decentralized applications (Dapps) built on LayerZero are some of the top-used entities across blockchain platforms like Aribtrum, Optimism, Ethereum, Binance Chain and Polygon.

In the first week of April, LayerZero-powered applications like Stargate and Radiant Finance were most used on Arbitrum and Optimism. On Polygon, Binance Chain and Ethereum, LayerZero and its applications ranked between 7th and 30th concerning user activity.

The primary motivation for the increasing adoption is the speculation around the native token airdrop of LayerZero. The team has included a mention of the ZRO token in their source code on Github, which makes an airdrop toward early users likely.

The Ethereum network’s Shapella upgrade, scheduled for around 6:30 pm EST on April 12, has induced significant uncertainty among traders, according to a report by Kaiko. 

The upgrade will enable staked-ETH withdrawals from the Beacon Chain for the first time since its launch in December 2020. According to previous estimates, the upgrade will add nearly 1.2 million to 3 million worth of ETH selling pressure in the first few weeks. This is one of the main reasons traders appear to be taking a cautious stance ahead of the upgrade.

Kaiko’s report shows that ETH is lagging behind BTC in spot and futures trading volumes, while options market data shows traders are actively adding short-term hedging positions.

Ethereum market share in USD trading volume compared to Bitcoin declined to March 2021 lows near 30%, per Kaiko data, showing that Ether has "struggled to maintain pace" with Bitcoin spot volumes. During Ethereum's last big upgrade, The Merge, its market share relative to Bitcoin reached a high of 53%.

Similarly, the relative increase in the open interest (OI) volumes for Bitcoin has surpassed Ethereum considerably with the April 10 price surge above $30,000.

The Ethereum network’s Shapella upgrade, scheduled for around 10:30 pm UTC on April 12, has induced significant uncertainty among traders, according to a report by Kaiko. 

The upgrade will enable staked Ether (ETH) withdrawals from the Beacon Chain for the first time since its launch in December 2020. According to previous estimates, the upgrade will add nearly 1.2 million to 3 million worth of ETH selling pressure in the first few weeks. This is one of the main reasons traders appear to be taking a cautious stance ahead of the upgrade.

Kaiko’s report shows that ETH is lagging behind Bitcoin (BTC) in spot and futures trading volumes, while options market data shows traders are actively adding short-term hedging positions.

Ethereum’s market share in U.S. dollar trading volume compared to Bitcoin declined to March 2021 lows near 30%, per Kaiko data, showing that Ether has “struggled to maintain pace” with Bitcoin spot volumes. During Ethereum’s last big upgrade, the Merge, its market share relative to Bitcoin reached a high of 53%.

Similarly, the relative increase in the open interest (OI) volumes for Bitcoin has surpassed Ethereum considerably with the April 10 price surge above $30,000.