What is the Ethereum Shanghai upgrade?

Key takeaways

• Ethereum’s Shanghai upgrade is slated for April 12th
• For the first time, users will be able to unstake their ETH
• There is currently 17.7 million ETH locked up, equivalent to 15% of the entire supply
• Some users have had their ETH locked up since December 2020, when it traded at 

Ethereum has its next major event lined up, referred to as the Shanghai upgrade. But what actually is it? And when is it going to happen?

Well, the when is the easiest part. After much anticipation, the event is slated to occur Wednesday (April 12th). 

As for what it is, the headline development is that staked ETH will finally be able to be unstaked and sold. 

Since the Merge upgrade went live in September 2022, Ethereum has been a proof-of-stake blockchain. However, staked Ethereum has still been locked up…until now. Once the Shanghai upgrade goes live, users are free to do what they wish with their ETH. 

While the Merge only took place seven months ago, stakers had been locking up their ETH in the staking contract long before. Staking actually opened in November 2020, with the Merge repeatedly delayed until finally taking place in September. 

How much Ethereum will be released?

Finally, the Merge went live in September, but the full transition to proof-of-stake was not yet completed. This means the ETH locked up has continued to grow and today there is 17.7 million ETH locked up, translating to 15% of the entire supply. 

It has been a long wait for some investors. The price of Ethereum was below $400 in December 2020, before going bananas in 2021 as the crypto boom send prices vertical. It climbed as high as $4,800, only to crash down below $1,000 again as prices cratered during the bear of market. 

And through all this time, the ETH has just been…there. Locked up and restricted from sale. 

Liquid staking derivatives

Although investors did have options. Many utilised liquid staking derivatives, which means that they received tokens in lieu of their staked ETH. They could then trade these tokens, which because they will be redeemable for ETH once unlocked, theoretically (and largely in practice, too) traded pretty close to 1:1 with ETH. 

So while the previous chart paints a rollercoaster of emotions as ETH skyrocketed during the pandemic boom before freefalling back down, not all investors were forced to ride that rollercoaster. 

Will there be sale pressure on ETH?

The presence of staking derivatives means that the event will be less climatic, at least in terms of sell pressure. However, it remains true that ETH will still be easier to sell, and there is nothing to say that investors won’t withdraw and sell their ETH directly once they can. 

Then again, there is nothing to say this will happen either. Like many things in markets, it comes back to the concept of being “priced in”. This event is not a surprise, and hence the pressure will likely not be heavy in either direction. 

Of course, a bit of irrationality is not exactly rare in crypto markets, so perhaps there will be some movement. But again, this is a move which has been coming for a long time – it just formally has a date now. 

Macro environment will hold the key

While the event is key for the fundamentals and long-term future of Ethereum, when looking at the price action specifically, macro remains the most pivotal factor, and the reason that crypto prices have surged upwards thus far in 2023. 

ETH will continue to trade in line with the wider market. This in turn depends largely on the future path of interest rates and the sentiment in financial markets. 

2023 has thus far seen a complete flip in expectations of interest rates, with the market pricing in an end to the uber-tight monetary policy which has been in place for the last year. This has helped propel crypto prices north, with Ethereum up 58% this year. 

However, price is impossible to forecast, especially in the short-term. But looking beyond the number-go-up or number-go-down, the Shanghai upgrade represents another important milestone for Ethereum as a network and a technology, regardless of whether sell pressure may impact price in the short-term.