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ETH Staking Slows Down Ahead of Much Awaited Shapella Upgrade

Posted on April 10, 2023

Data from on-chain analytics platform Glassnode shows that the amount of staked ETH has reduced significantly as the Ethereum community awaits the Shapella upgrade.

The drop in staked ETH is due to the regulatory pressure facing the crypto space in the US recently. “Deposit activities are currently low due to regulatory pressure and the Shanghai upgrade,” Glassnode stated on 9 April in a report on the current state of ETH staking.

The platform further stated that “Deposit trends by staking providers have exhibited a clear shift over time with Kraken, Binance and Coinbase jousting for deposit allocations across the Beacon Chain’s early days.”

Deposit trends by staking providers have exhibited a clear shift over time with Kraken, Binance and Coinbase jousting for deposit allocations across the Beacon Chain's early days.

As the dust settled between the three giants, it was Lido who emerged victorious, continuing to… pic.twitter.com/yp50NWQ5XJ

— glassnode (@glassnode) April 9, 2023

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There’s a lot of confusion concerning the status of crypto assets in the US. Regulatory agencies such as the Securities and Exchange commission (SEC) as well as the Commodities Futures Trading Commission (CFTC) do not agree on guidelines. For example, while the SEC’s chair Gary Gensler says that Ethereum is a security, the CFTC chair insists that it is a commodity.

More recently, New York regulators filed a case against KuCoin for trading Ethereum without registering as a securities trading platform. In other words, they considered Ethereum to be a security rather than a commodity. These inconsistencies in regulation has caused skepticism among investors, hence the drop in staking.

The situation is worsened by the recent crackdown on liquidity staking which affected exchanges like Kraken, and the recent allegations against Binance and its executives by the CFTC.

About Shapella Upgrade

Following the Merge upgrade which took place in 2022, Shappella is the next major upgrade on the Ethereum network. Although the Merge left much to be desired, the Ethereum community is once again eagerly looking forward to Shapella which is to take place on 12 April.

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According to  details on the Ethereum blog, Shapella “enables validators to withdraw their stake from the Beacon Chain back to the execution layer. It also introduces new functionality to both the execution and consensus layer.”

Shapella will encompass  “changes to the execution layer (Shanghai), consensus layer (Capella) and the Engine API.” The upgrade also known as the Shanghai hard fork is expected to boost ETH flow to staking platforms like Lido, which is currently leading in number of staked ETH.

Ethereum users who use an exchange, digital wallet, or hardware wallet need not worry about the upgrade unless instructed otherwise by their exchange or wallet provider. However, non-staking operators of an Ethereum full node will need to update their nodes to the latest version of their Ethereum client.

Shapella will not Reduce Ethereum Fees

The proposed upgrade may sound impressive to developers and other technical Ethereum users, but the biggest challenge facing the average non-tech user is the exorbitant transaction fees on the network. Shapella obviously won’t be addressing this issue, just like the Merge did not address it, leaving many questions hanging.

Although the transaction cost is relatively low currently, it can spike significantly at times of high network activity, causing the network to be expensive not only for Ethereum but any other assets sent over the network. For example, people prefer to send USDT over Tron network although Ethereum also supports the stablecoin, just to reduce cost.

Hopefully, future upgrades will address this issue which is probably a major problem holding back the growth of Ethereum and also its coin ETH apart from lack of regulatory clarity.

 


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