Gate.io Market Watch: Shapella May Push DeFi Innovation

Gate.io
3 min readApr 6, 2023

Ethereum’s Shapella upgrade will go live on the Ethereum mainnet on April 12. Shapella is the most anticipated Ethereum event since The Merge upgrade flawlessly went live in September 2022. According to the Ethereum Foundation, Shapella is the collective term for several upgrades. Shanghai is the upgrade for the execution layer, while Capella is for the consensus layer, hence Shapella.

What is Shapella

We’ll have to go back to The Merge to understand the significance of the Shapella upgrade. In September 2022, Ethereum ended its proof-of-work (PoW) model and entirely replaced it with the proof-of-stake (PoS) model. Both models had been running side-by-side for some years before The Merge. Simply put, this meant that Ethereum was no longer secured by miners that mine blocks for rewards but instead by validators who stake ETH to earn rewards.

At the time, staked ETH and staking rewards were locked, with validators unable to withdraw. Now, once the Shapella hits the mainnet, validators can begin to withdraw their stake ETH. In addition, validators can make partial withdrawals immediately, transferring earned rewards exceeding their base 32 ETH stake. However, validators that wish to withdraw their entire stake of 32 ETH will have to wait in the exit queue.

Ethereum after Shapella

One of the primary concerns surrounding Shapella is that there will be a mass exodus of validators withdrawing their staked ETH. However, there are mechanisms to limit the rate of validators exiting.

The annual percentage rate (APR), or the rate at which validators earn rewards, is dynamic and fluctuates with the total ETH staked on the network. If many validators exit, the APR will increase and incentivize new validators attracted by higher rewards. In addition, a limited amount of validators can withdraw their entire 32 ETH at any given time. Only six validators can exit per epoch, translating to about 43,200 ETH per day out of the total 17.8 million staked ETH.

It is doubtful that validators will rush to withdraw their entire stake en masse, and any selling pressure created by withdrawn ETH will likely be less than some anticipate, with minimized direct effects on the day-to-day trading activity.

Overall, greater flexibility in staking ETH may help attract new investors who were previously weary about locking up their assets indefinitely. In addition, liquid staking protocols, platforms that gained popularity by offering more flexible staking, will now have to compete with staking directly on Ethereum. Heightened competition could help boost DeFi development as newer and more innovative staking models comes to market.

ETH staking made easy

Staking on Ethereum has a higher barrier to entry, requiring a minimum of 32 ETH and knowledge of operating an Ethereum node. However, if you want to earn rewards but don’t have 32 ETH or don’t want to run a node, then a more flexible and easy method is through alternatives like Gate.io’s ETH2.

Staking ETH on Gate.io is as simple as obtaining and holding the ETH2 token on the Gate.io exchange. All holders of the ETH2 token will automatically receive staking rewards. Furthermore, there are no minimum requirements to stake using ETH2 on Gate.io, and ETH2 can be redeemed back for ETH or USDT at any time.

--

--