Before and after Shanghai: A deep dive into the consequences of Ethereum’s latest upgrade

Ethereum’s long-awaited Shanghai upgrade took place on April 12 at 10:27 p.m. UTC. The hard fork brought several changes to the Ethereum protocol, the biggest and most notable being EIP-4896. While other smaller EIPs aim at reducing gas fees to benefit developers, EIP-4896 enables validators to withdraw their staked tokens.

The importance of EIP-4896 lies in its ability to drastically alter Ethereum’s validator landscape and affect ETH’s price.

Validators have been depositing ETH as early as November 2020, well before the launch of the Beacon chain. The implementation of EIP-4896 now enables validators to access their staked ETH and the staking rewards they accumulated for the first time.

It also enables validators to exit the validator pool voluntarily.

And while the scale of the Shanghai upgrade is much smaller than last year’s Merge, its effect on Ethereum’s price could be much more significant. With approximately 18 million ETH staked, there has been a growing concern over the consequences of unlocking such a considerable portion of Ethereum’s supply.

Many have been concerned that the unlock will flood the market with additional ETH, increasing the selling pressure that will inevitably lead to extreme price volatility. A steep decline in ETH’s price could then lead to increased volatility in the DeFi sector, wiping out billions in value from DeFi protocols and threatening DEX liquidity.

Others believe that Ethereum’s sheer size and market dominance will be able to absorb most of the impact of the Shanghai upgrade. Estimates are that potential price volatility will quickly resolve, and the network will stabilize within weeks, further cementing Ethereum’s market position.

In this report, CryptoSlate dives deep into on-chain metrics before and after the Shanghai upgrade to determine the scope of its effect on the Ethereum network.