The Ethereum community is eagerly anticipating the upcoming Shapella upgrade, which will enable end-to-end unstaking flow for staked ETH. This will mark a critical development for the Ethereum network and its community since users have been unable to withdraw their staked ETH since the launch of the Beacon Chain in December 2020.
However, with the completion of the Goerli public testnet upgrade in March 2023, withdrawals will finally be allowed as the Shapella upgrade gets rolled out on the mainnet by mid-April 2023.
The Goerli testnet upgrade encountered some initial hurdles due to low network participation, but it eventually enabled users to withdraw their staked Ether.
Once the Shapella upgrade is deployed on the mainnet, users can finally withdraw their staked ETH, which was previously locked up indefinitely. This is a significant milestone for Ethereum, and its transition to a proof-of-stake (PoS) network, as users, will be able to stake and unstake their ETH more freely without the fear of being unable to access their assets for an indefinite period.
Understanding the Shapella Upgrade
The Shapella upgrade, a name derived from a combination of Shanghai and Capella upgrades, is set to revolutionise staking on the Ethereum network. The upgrade will enable staking withdrawals, giving users greater flexibility and control over their ETH holdings.
The much-anticipated upgrade is set to launch in April after a successful Goerli testnet. This marks a significant milestone in Ethereum’s transition to a proof-of-stake model, where users stake ETH to validate transactions and receive newly generated ETH as rewards. Since late 2020, about $30 billion worth of ETH has been deposited with the Ethereum network for staking, representing almost 15% of all ETH in circulation.
With Shanghai’s launch, users will be able to withdraw their staked ETH and the accumulated rewards. This means that users will be able to stake their ETH, earn rewards, un-stake their ETH, and re-stake to start earning more rewards.
The upgrade also enables previously staked ETH to be deposited into execution layer accounts, improving liquidity and enhancing the network’s sustainability, scalability, and security.
Once the upgrade is complete, staking rewards will be automatically processed for active validator accounts.
A “voluntary exit” message must be signed and broadcasted with validator keys for users looking to exit staking entirely and withdraw their full balance. This will start the process of exiting from staking.
Once complete, the account will no longer be responsible for performing validator network duties, nor will it be eligible for rewards, and would no longer have its ETH “at stake”.
And once an account is flagged as “withdrawable” and withdrawal credentials have been provided, the balance will be fully transferred. However, it’s important to note that withdrawal requests may take months to complete, depending on user demand.
Despite some criticisms and delays in its development, Shanghai is expected to enable a smooth transition for users to withdraw their staked ETH and rewards, further driving the growth of ETH staking and contributing to Ethereum’s continued evolution as a leading blockchain network.
Staking Strategies
Staking has become increasingly popular among cryptocurrency investors and has proven an effective way to earn passive income. There are several different staking strategies, each with its own benefits and drawbacks, that investors can consider to optimise their returns and minimise risks depending on individual risk tolerance and investment goals.
Long-term staking is one option that involves locking up funds for an extended period to maximise returns. This strategy suits investors willing to wait for a more extended period to earn higher returns.
Long-term staking also helps avoid the risk of volatility and price fluctuations in the short term, but it requires patience and a long-term investment horizon.
Short-term staking is another one that involves locking up funds for a shorter period to take advantage of market fluctuations. This strategy is ideal for investors looking for quick returns but willing to put in more effort to monitor market conditions and adjust their staking positions accordingly.
One can also opt for diversified staking involving spreading out investments across various chains and networks rather than relying solely on one network, i.e. Ethereum. This strategy helps minimise risk by spreading out investments across different networks, reducing the impact of any network’s operation times and security.
Diversified staking also allows investors to take advantage of different staking rewards and yield opportunities across multiple chains. But at the same time, it spreads out your risk, making it more difficult to manage.
Liquid staking is another popular strategy under which you lock your tokens while maintaining liquidity, enabling investors to use their staked assets for other purposes, such as trading or borrowing.
Combining staking with other DeFi strategies through liquid staking can provide investors additional returns and flexibility. For example, investors can lend their staked assets to earn interest or use them as collateral to borrow other assets.
Rockx’s Bedrock is a liquid staking platform that allows digital asset holders to maximise their returns while maintaining liquidity on their assets. It offers a secure and transparent enterprise-grade platform for managing digital assets.
When users stake their assets, they receive a representative token that allows them to earn a yield on their tokens without restricting liquidity. This feature makes Bedrock suitable for those holding assets for the long term as well as those day trading in the short term.
Bedrock’s unique plug-and-play solution and customised solutions make it an attractive option for institutions looking to integrate ETH staking into their services. Its security features, meanwhile, ensure users can implement compounding yield strategies safely, while its market-making opportunities provide further earning potential.
Risks and Considerations
Staking ETH after the Shapella upgrade comes with potential risks and considerations that investors should consider.
For starters, be mindful of market volatility and price fluctuations. Staking ETH involves locking up your assets for a certain period, and during this time, market volatility and price fluctuations can affect your investment returns.
As such, if the price of ETH drops significantly during the staking period, you may end up losing money when you withdraw your funds, even if you receive rewards. Investors need to be aware of market risks and fluctuations and be prepared to hold their assets for a longer period to ride out any price drops.
While staking ETH after the Shapella upgrade will allow users to withdraw their staked assets, it also introduces potential security risks. Investors need to ensure they are using a secure staking platform and are following best practices for securing their digital assets, such as using a hardware wallet and strong passwords.
There is also the risk of staking pools being hacked, so investors should carefully choose which pools and platforms they use for locking their ETH.
One of the critical risks at the moment is the uncertain regulatory environment around staking, which is still evolving, as there is a risk that regulators may impose restrictions or regulations on staking activities. This could lead to uncertainty for investors and affect the value of staked assets. Hence, investors should stay up to date with regulatory developments and ensure they are complying with any applicable regulations.
For instance: SEC Chairman Gary Gensler believes PoS tokens are security because investors anticipate a return on their investment from staking. Additionally, in a lawsuit against KuCoin, the New York Attorney General (NYAG) claimed that Ether is an unregistered security.
In contrast, the US Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam has stated that Ether is a commodity and should fall under the jurisdiction of the CFTC. The differing opinions on the regulatory treatment of PoS tokens can confuse market participants, and this debate is likely to continue in the coming years.
This goes on to show that staking ETH after the Shapella upgrade will introduce potential risks and considerations that investors should carefully evaluate before committing to their assets. While staking can provide attractive returns, investors need to be aware of the market and security-related risks and regulatory concerns and take appropriate measures to mitigate these risks.
Best Practices for Successful Staking
Staking ETH can be a great way to earn passive income, but following some best practices is important to ensure a successful experience.
The most important thing when staking is choosing a reputable and secure platform. Choosing a trustworthy platform for staking your ETH is crucial to ensure your funds are safe.
So, look for a platform with a solid reputation, strong security measures, and a proven track record of successful staking operations. It’s also important to research and verifies the platform’s credentials, regulatory compliance, and customer support.
Because staking rewards are subject to market conditions and price fluctuations, staying informed about the latest news and trends is important. Follow reputable sources of market analysis, such as industry publications and expert analysts, to stay up-to-date with the latest developments and make informed decisions.
Additionally, several tools and resources are available to help you maximise your staking rewards. For example, you can use staking calculators to estimate your potential earnings and compare different staking options.
You can also use staking pools to increase your chances of earning rewards by pooling your resources with other stakers. Moreover, some platforms offer referral rewards or bonuses, so consider inviting friends and colleagues to join you in staking ETH. With so many useful tools available, leverage them to maximise your rewards.
Conclusion
The Shapella upgrade, which finally enables unstaking to allow ETH withdrawals, marks a significant milestone in the evolution of the Ethereum network. With the ability to withdraw staked ETH and rewards, investors, and validators will have more control and flexibility over their assets, potentially leading to increased participation in the network and improved liquidity.
As staking becomes more accessible and user-friendly through platforms such as Bedrock, more mainstream people will likely be attracted to staking, and the overall ecosystem will continue to grow. However, investors should exercise caution and conduct thorough research before staking their ETH with any platform, as risks such as market volatility, security, and regulatory concerns remain.
Overall, the future of ETH staking post-Shapella upgrade looks promising. With the continued innovation and development of the Ethereum network, staking will likely remain an important component of the ecosystem for years to come.
