Guide to the ETH hard fork, unstaking and liquid staking projects
- Ethereum’s upcoming Shanghai upgrade is scheduled for March 2023, and users will be able to unstake their ETH and invest in liquid staking projects.
- The hard fork is set to de-risk Ether staking and open ETH token withdrawals, peaking user interest in liquid staking platforms like Lido DAO.
- The announcement of the hard fork and unstaking of ETH tokens fueled a rally in altcoins, Ethereum Classic, Lido Finance, Ethereum Name Service and Solana among others.
Ethereum, the altcoin is on track for its Shanghai upgrade, the long-anticipated hard fork in the second-largest asset by market capitalization. The hard fork will be followed by unstaking of ETH tokens and experts believe this could fuel a bullish narrative for liquid staking.
Liquid staking frees up staked Ethereum from lockup periods and the global community of ETH holders is responsible for the network’s security.
Ethereum Shanghai hard fork: Here’s what to expect
Ethereum ecosystem developers determined that the next ETH hard fork called “Shanghai” will have a target release time frame of March 2023. A hard fork is a radical update in the asset’s ecosystem and makes previously invalid blocks and transactions valid, or vice-versa. It requires all nodes or users to upgrade to the latest version of the protocol software.
One of the key challenges in the Ethereum ecosystem is that stakers have not been able to withdraw their staked ETH tokens unless they used a liquid staking method. However, the Shanghai hard fork is set to change the rules for ETH holders.
Tim Beiko, core Ethereum developer announced that withdrawal of staked ETH tokens would be prioritized over the implementation of the “Surge” upgrade with Ethereum Improvement Proposal (EIP)-4884.
While EIP-4844 is not included in the Shanghai hard fork, three more EIPs that are of interest primarily to developers will be bundled into the upgrade: EIP-3651 (Warm Coinbase), EIP-3855 (PUSH0 statement) and EIP-3860 (Limit and counter init code).
The most interesting of them is EIP-3651: Warm Coinbase. EIP-3651 is considered a game changer that could reduce network fees for some of the key network participants called builders. Coinbase is the name of the software that builders use to receive new tokens on the network.
Every new transaction on the platform needs to interact with the Coinbase software several times, the first interaction costs more as the software needs to “warm” up, and then the fees decline as the interactions increase. However, with the introduction of EIP-3651, the Coinbase software will remain warm and require a lower gas fee to access it.
Developers also agreed to address the implementation of the “EVM Object Format” (EOF) in Shanghai, which is a collection of EIPs that upgrade the Ethereum Virtual Machine, the environment where Ethereum is able to execute smart contracts:
EIP 3540, EIP 3670, EIP 4200, EIP 4570 and EIP 5450.
Altcoins that rallied in response to ETH Shanghai hard fork
While the second-largest altcoin holds steady ground in 2023, altcoins on the ETH blockchain and in the liquid staking ecosystem have witnessed a peak in their prices. Ethereum Classic (ETC), Lido Finance (LDO), Ethereum Name Service (ENS), Solana (SOL) have witnessed the influence of Ethereum Shanghai hard fork-influenced price rallies.
Lido Finance and Rocket Pool (RPL), liquid staking protocol tokens have yielded double-digit gains for holders in the past 24 hours, based on data from CoinGecko. Since liquid staking allows users to secure their holdings without the requirement of a large initial supply, like 32 ETH in case of the deposit contract, experts believe this could garner interest from users who unstake their ETH tokens following the Shanghai hard fork.
Lido DAO is considered the leader of the liquid staking ecosystem with a higher annual yield and market share than other protocols. Lido commands 88.55% of the total Staked Ether among all protocols. The daily volume across major exchanges for LDO climbed 436% in a 24-hour period on January 9, 2023.
Solana, considered an alternative to the Ethereum network yielded 25% gains to token holders over the past day, alongside Ethereum Classic and Ethereum Name Service that offered nearly 10% gains.