What is Ethereum’s Shapella upgrade?

Unpacking Ethereum’s Shapella upgrade and its impact on the top smart contract network.

Token Takeaways ✍️

✨ Ethereum launched a long-awaited upgrade called Shapella in April 2023. 

✨ Shapella enabled staked ETH withdrawals for the first time.

✨ Shapella sparked debate but its successful launch went down as another major milestone for the top smart contract blockchain. 

In April 2023, the world’s top smart contract blockchain launched a two-pronged update called Shapella. The Ethereum hard fork ushered in several changes, including enabling staked ETH withdrawals. The update is expected to have a major impact on Ethereum and the broader token ecosystem. In this guide, we unpack what the update means for the space, and why you should care about it. Read on to learn more. 

Ethereum’s Shapella upgrade explained 👌

Shapella is a hard fork update comprised of two parts: Shanghai and Capella. 

Shanghai represents an upgrade on the execution layer, which processes transactions. Capella, meanwhile, happened on the consensus layer that runs Ethereum’s Proof-of-Stake mechanism. 

Token tips: A hard fork is a type of update that introduces major changes to a blockchain, as opposed to a soft fork where new features are added without changing the blockchain’s rules 💡

Shapella introduced a few changes, but the most notable one was enabling staked ETH withdrawals. To understand the significance of this update, it’s worth revisiting Ethereum’s recent history. 

In December 2020, Ethereum launched a chain called the Beacon Chain in preparation for the network’s transition from Proof-of-Work to Proof-of-Stake. 

Ethereum inventor Vitalik Buterin said that the blockchain’s development would be “55% complete” following The Merge to Proof-of-Stake. Shapella was one of the key upgrades to bring the network to 100% completion (Photo: Chet Strange/Bloomberg)

After the Beacon Chain went live, Ethereum users could deposit ETH to secure the network under Proof-of-Stake and earn staking rewards. Anyone who deposited ETH had to lock up their tokens and rewards, so staking involved some risk.

In September 2022, Ethereum completed “The Merge” from Proof-of-Work to Proof-of-Stake. Shapella launched in April 2023, letting Ethereum users who deposited ETH to secure the network withdraw their assets.

The impact on the market 🤔

There are currently around 26 million ETH staked on the Ethereum network across 821,000 validators (every validator makes a deposit of 32 ETH). Based on ETH’s current market price, that equates to about $49 billion worth of ETH. 

There’s currently around $49 billion worth of ETH staked on Ethereum (Source: Etherscan)

Ethereum has a circulating supply of roughly 120 million ETH. As the staked token supply represents a large portion of the overall supply, some feared that Shapella would cause a significant selloff. ETH has increased in value since the Beacon Chain launched, and stakers have also been accruing rewards, which suggested that some stakers could opt to sell their assets.

However, Ethereum capped staked withdrawals at around 43,200 ETH per day. This helped prevent a sharp market reaction immediately after the update shipped as withdrawals are gradual. 

Was Shapella a derisking event? ⚠️

Some took a different view. Many Ethereum believers argued that Shapella reduced risks associated with The Merge and ETH staking. This, they said, bodes well for ETH and the sentiment surrounding Ethereum. 

Shapella’s successful launch also set the stage for Ethereum to progress on its roadmap. The blockchain plans to introduce new features like sharding as it prepares for onboarding more users. 

Token tips: Sharding will introduce 64 new chains on Ethereum to reduce congestion and help the blockchain scale. It’s one of the key updates on Ethereum’s roadmap 💡

Shapella has also shone the spotlight on liquid staking projects, which issue Ethereum users with a token when they deposit ETH to help them get extra yield on their assets. With a new wave of attention on staking due to Shapella, liquid staking projects could benefit. Lido and Rocket Pool are the two best-known liquid staking projects today. 

The future of the token ecosystem 🔮

While it’s difficult to predict how Shapella could impact the token market in the future, its launch was a positive milestone for Ethereum. And as Ethereum sits at the core of the token ecosystem, Shapella has also benefited the broader space. 

Learn more 👀

Now that you’ve read our guide, you should have a clearer idea of how Shapella impacts Ethereum and the broader token ecosystem. To learn more about Ethereum, check out our Collections, The Ethereum Ecosystem and Ethereum’s Mass Adoption Mission, via the app now. 

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