T he highly anticipated Shanghai hard fork will be held on the Ethereum (ETH-USD) network on April 12.The upgrade will allow both validators and investors to finally withdraw their staked ETH.Since September of last year over 17.7 million ETH have been locked on the deposit contract .This is about $30 billion of investments and 25% of the ecosystem’s total market capitalization , making Ethereum the largest Proof of Stake (PoS) network by staked capitalization.
Image source: beaconcha.in
Last week the platform has undergone the Shapella test — the final phase on the Goerli test network to pave the way for activating staked ETH withdrawals on the mainnet in April.Other than some validators spoofing and not updating their software, the test was a success.Tim Beiko of the Ethereum Foundation believes that low validator participation should not be an issue when the upgrade is deployed on Ethereum’s mainnet.
Given that a big amount of ETH is to be unlocked, the Ethereum dev team is afraid that an immediate and massive outflow of validators may cause a fall in the asset value.
To prevent the price from falling off the withdrawal will be subject to a daily limitation of ETH 43,200, which also implies that validators will not shift massively from the network.
That means that even If each validator withdraws the biggest possible amount, the total daily outflow will be around $121 million.
Image source: Etherscan
Possible Impact on Price
Likely, the hard fork will negatively affect the ETH price in the short term due to a major outflow of users caused by the deterioration of the American regulators’ stance on Ethereum after it transitioned t o PoS back in September.This year the regulators’ pressure on Ethereum-related services is increasing.In February, Kraken agreed to stop crypto staking services and paid $30 million to settle the Security Exchange Commission (SEC) charges.
Kraken holds 1.2 million staked ETH with a 7% share of staking.That said, immediately after the hard fork, the platform may line up to withdraw the complete amount in order to return funds to customers.Given the speed limit, it would take more than two weeks to process this application alone.
Sharing a total of 18% of ETH staked with Kraken, Coinbase (NASDAQ: COIN ) may soon have to refrain from staking too.
Coinbase is now the second largest holder in the ETH network with a 13% share.
Speaking to the media on Mar.15, SEC Chairman Gary Gensler reaffirmed his intention to achieve security status for Ethereum — all because of the possibility of staking PoS assets and the expectations of investors to get passive income.
The New York Attorney General’s Office, which filed a lawsuit against KuCoin — another large crypto exchange — on March 9 after employees were able to purchase ETH on the platform, adheres to the same assessment.According to the prosecutor’s office, in order to sell these coins, exchanges must have a license as professional participants in the securities market.
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