Gate.io Market Watch: Ethereum’s Post-Shapella Evolution and Impact

Gate.io
3 min readApr 20, 2023

It’s finally here. Shapella, Ethereum’s most anticipated upgrade since the Merge, went live on the mainnet without a hitch. The upgrade enabled users to withdraw their staked ETH. With Shapella out of the way, Ethereum developers are now setting their sights on scalability and performance upgrades.

Last September, the Merge upgrade ended proof-of-work (PoW) on Ethereum, the same model used by Bitcoin, in favour of proof-of-stake (PoS). Previously, PoW had been used to validate and secure Ethereum in tandem with PoS since the Beacon chain went live in 2020. Since then, users who staked ETH could not withdraw until the Shanghai and Capella (Shapella) upgrades went live on April 12.

What’s next?

The path ahead is now clear for Ethereum’s developers to focus more on several other upgrades. First up will be proto-danksharding as outlined in the EIP-4844 development proposal. This upgrade will be a prototype for danksharding, which refers to splitting the Ethereum blockchain into several congruent pieces to increase the space for transactions and reduce gas fees.

Three other significant upgrades will come next, called the Verge, Purge, and Scourge. First, following proto-danksharding, the Verge will increase the efficiency of data proofs using Verkle trees. Later, the Purge will increase scalability, resulting in a TPS (transaction per second) increase from 29 to around 100,000. Lastly, the Purge aims to make Ethereum more resistant to censorship and MEV bots, preventing front-running trades and other malicious trading activity.

As for when these upgrades will come, proto-danksharding is in its early stages of implementation and may likely go live around the second half of 2023. As for other upgrades, Ethereum co-founder Vitalik Buterin stated that scaling would be next and emphasized it as an important issue to resolve before the next bull run or “people are going to be stuck paying $500 transactions.”

More attractive for big players

Some speculate that Shapella will make Ethereum more attractive to deep-pocketed institutional investors. The primary reason is that these investors had previously been reluctant to lock up their funds indefinitely. In addition, as Shapella was implemented without any issues, Ethereum has again boosted confidence in its ability to evolve and improve. As a result, the path toward more advanced and impactful improvements is more apparent.

Shapella’s impact on the market

Before the upgrade, the primary concern from the crypto community was that it would lead to a mass withdrawal and sell-off. However, summarized on the Gate.io Blog, Glassnode Insights concluded that even in the most extreme case, where all of the estimated withdrawn ETH is sold off, the amount would fall within range of the average weekly inflow volume on exchanges.

Shapella’s immediate impact on the market has not been as extreme as many had anticipated. As mentioned on the Gate.io Blog by Glassnode Insights, the main segment of users unstaking are expected to redeploy their ETH towards liquid staking protocols. Most unstaked ETH in the hours following the upgrade came from solo-stakers from the Beacon chain era who are more likely to redeploy. Further, Ethereum uses an exit queue that limits the amount of staked ETH that can be withdrawn at once. As a result, any effects from withdrawals and sell-offs will play out over days and weeks.

Staking ETH after Shapella with Gate.io ETH2.0

Users looking to deploy their staked ETH are turning to liquid staking protocols or other staking methods that provide more flexibility and a lower barrier to entry compared to staking directly on Ethereum. For example, Gate.io offers the ETH2.0 staking solution that allows traders to stake less than the minimum 32 ETH and still earn rewards. Recently, Gate.io announced that withdrawals of staked ETH through the ETH2.0 platform would be enabled within seven days, with ETH2.0 redeemable for ETH at a ratio of 1:1.

The reason so many users are turning to Gate.io ETH2.0 is due to barriers in staking ETH independently. To stake ETH on Ethereum directly, users must have a minimum of 32ETH and the ability to run an Ethereum node. Staking ETH on Gate.io is much more accessible. Users can obtain and hold the ETH2 token on the Gate.io exchange and receive automatically distributed rewards. The original staked amount and rewards can later be converted to ETH.

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