The Shappella update, also known as EIP-4895, facilitates validator staking withdrawals on Ethereum. Deactivated in September 2022 during the transition to proof of stake (PoS), this functionality was relaunched after its upgrade in April 2023. An operation which had a positive impact on staking on Ethereum.
Increase in staking on Ethereum driven by Shappella
Following the Shella upgrade in April 2023, the Ethereum platform has undergone a significant transformation that has attracted the attention of investors. CryptoQuant’s analysis signals a notable shift in ETH staking dynamics.
Indeed, this upgrade, which allows investors to withdraw assets at any time, has restored confidence. But above all it fueled an increase in ETH staking on the Ethereum network which increased from 15 to 24.5%.
This development shows that investors have remained committed to staking on Ethereum. This, despite diminishing returns marked by the drop in annual revenues of validators from 5.2% to 3.64% as of today.
However, looking at ETH reserves on exchanges shows that liquid staking supply is currently only 11%. Which indicates a prolonged decline. A situation that arises from the decrease in the number of ETH available for active transactions and which has significant implications.
The implications of this development
Reduced liquidity is often correlated with a potential rise in prices. This is a trend seen in the movements of assets like gold and, more closely, bitcoin (BTC). But unlike BTC, the supply of Ether (ETH) is not capped.
This complicates market dynamics as staking deposits increase. Not to mention that the relationship between ETH staking and the reduction in circulating supply has consequences for volatility.
Indeed, although Ethereum does not have the capped supply of Bitcoin, the continued reduction in the volume of ETH in circulation could help reduce volatility. This, in turn, could stabilize the price or even propel it higher, thereby increasing the value of the asset.
LeonWaidmann, a blockchain analyst, expressed a unique perspective on the current situation of ETH. “We are seeing a shortage of ETH like never before, eclipsing all past bull runs! Ultimately, this shortage of supply will lead to a price explosion”did he declare.
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