Ethereum Shanghai Upgrade Won't Result in Staked ETH Exodus

In Brief

• Ethereum staking withdrawals will be dynamic.
• The amount that can be unstaked depends on how many validators there are.
• A full exit is subject to a withdrawal queue.

The Ethereum network is set for a major upgrade in March. Dubbed Shanghai, the upgrade will finally release ETH staked on the Beacon Chain, but it isn’t as simple as that.

When the Ethereum network gets upgraded in March, ETH staked in late 2020 will finally be released. However, it will not happen simultaneously due to network security concerns.

The Shanghai upgrade will implement EIP (Ethereum Improvement Proposal) 4895. This enables consensus layer withdrawals for the first time since December 2020.

On Jan. 13, Blockworks researcher ‘Westie’ detailed the process involving an exit queue: Ethereum Exit Queue.

The Ethereum withdrawal period is dynamic and dependent on how many validators there are exiting at the time. Furthermore, validators must undergo a two-stage process to withdraw – an exit queue and a withdrawal period.

A few different parameters define the exit queue. Two of these are the full number of validators and something called a churn limit. The churn limit is a mechanism that ensures the network’s stability and security.

The churn limit determines how many validators can fully exit per epoch or 32 blocks. With an estimated half a million validators, the researcher said the churn limit would be around 7. Additionally, the churn limit increases by one for every 65,536 validators.

Once a validator has gone through the exit queue as defined by the churn limit, they enter a withdrawal period. This has been estimated at around 27 hours for validators that are not slashed.

However, the period depends entirely on how many validators wish to make a full exit. If a third of them attempt it in one go, the withdrawal period could be as long as three months.

The researcher concluded that it is difficult to predict as we don’t know how many of the 498,925 active validators intend to fully exit their staked positions.

“As far as what to expect for the withdrawal period after Shanghai, it’s tough to tell. I personally believe there’s a good chance the queue is very large (70+ days) at first as there is a recycling of validators.”

Liquid Staking Momentum
A portion of Ethereum stakers will likely switch to liquid staking platforms for better yield opportunities. This way, ETH is indirectly re-staked.

Liquid staking platforms such as Lido have been performing well recently purely due to this new narrative. Furthermore, the amount of ETH staked has just reached a milestone of 16 million, valued at approximately $22.5 billion.

Disclaimer
BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.