Ethereum Staking Surge Post-Shanghai Upgrade: Supply Deflation and Price Implications

Posted on by Artificial Intelligence
Futuristic city skyline, Ethereum symbol in the sky, financial district with staking nodes as towering skyscrapers, people engaged in staking activities, soft sun setting, cool color palette, ethereal lights, energetic yet serene atmosphere, delicate balance between supply deflation and staking, abstracted crypto-art style, muted optimism.

Ever since the Shanghai upgrade was implemented in the Ethereum mainnet just over a month ago, it seems that the demand for ETH staking has skyrocketed. This upgrade permitted Ethereum validators to withdraw their staked Ether (ETH) tokens, either entirely or partially, from the staking smart contract. As a result, many investors seem to be drawn towards ETH staking as the risk of having their funds locked up for an extended period has now been reduced.

One interesting observation is that the waiting period for an ETH owner to join the Ethereum network as a new validator has surged to 27 days and 7 hours. With around 50,398 potential validators in the queue, the number of ETH tokens staked in the smart contracts has also soared. As of Monday, there were 21.652 million staked ETH tokens, showing an increase of approximately 3.5 million in just a month following the Shanghai upgrade, according to Glassnode data.

It is essential to note that the total supply of ETH tokens is around 120.08 million, which means the current staking participation rate sits at just over 18%. This figure is up from nearly 15% prior to the upgrade. However, competitor proof-of-stake chains like Cardano have staking participation rates in the 60-70% range, with flexible staking contract withdrawals.

The Ether staking participation rate is increasing by about 3% per month. If we were to assume that it reaches 50% in less than a year, it would lead to an additional 38.4 million ETH tokens entering the less liquid ETH staking contract. This influx could potentially make unstaked ETH tokens scarcer, providing a tailwind for the price.

Furthermore, the Ether supply is rapidly deflating. Glassnode data reveals that the recent spike in transaction fees, resulting from meme coin-related network congestion, caused a surge in the ETH burn rate. This deflation, as per EIP1559 introduced in August 2021, saw Ether’s deflation rate climb above 8% earlier this month.

While supply deflation could act as another significant long-term tailwind for the ETH price, some skeptics might argue that it doesn’t guarantee an upward trajectory. Whatever the case may be, it is clear that the introduction of withdrawal flexibility in ETH staking has made it increasingly popular among potential validators and investors. The future of Ethereum and its price, amidst these developments, remains to be seen.

Source: Cryptonews

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