Korbit Research Center "Low Possibility of Large Sell-off After Shapella"

by Lee Jungyun

Published 12 Apr.2023 09:57(KST)

Korbit Research Center, under the domestic virtual asset exchange Korbit, announced on the 12th that the possibility of a large volume of Ethereum being sold on the market after the Shapella upgrade is low.

Image source=Reuters·Yonhap News

According to the related industry, the Shapella upgrade, which will be implemented on the 13th, is the first update following the Ethereum Merge, which switched the consensus algorithm to the Proof of Stake (PoS) method. The Shapella upgrade is a portmanteau of the Shanghai and Capella upgrades. This upgrade is significant in that it enables the withdrawal of staked Ethereum.

Once the Shapella upgrade is implemented, validators can choose between partial withdrawal and full withdrawal methods for Ethereum. Partial withdrawal means withdrawing only the staking rewards while leaving the minimum staking unit of 32 Ethereum intact. Therefore, validator activities can continue even after withdrawal. In contrast, full withdrawal means withdrawing all staked Ethereum, which ends the validator activity immediately upon withdrawal.

Korbit Research Center first calculated the time required until all Ethereum eligible for partial withdrawal is withdrawn, then combined this with the full withdrawal scenario to estimate the maximum daily withdrawable Ethereum amount by date. As a result, it was found that it would take approximately 1 year and 5 months for all staked Ethereum to be withdrawn. Breaking down the maximum daily withdrawal by period, an average of 307,000 Ethereum is expected to be withdrawn daily for the first 3 days after withdrawal begins. From the 4th day to 6 months, 43,000 Ethereum, and after 6 months, 29,000 Ethereum are expected to be withdrawn daily.

These average daily withdrawal amounts correspond to approximately 0.254%, 0.035%, and 0.024% of the total circulating supply of 120 million Ethereum, respectively. Since Korbit Research Center calculated the results assuming the maximum daily withdrawal of Ethereum, they concluded that the possibility of a large volume of Ethereum hitting the market is low, and even if a large amount does come out, the market can sufficiently absorb it.

Additionally, Korbit Research Center explained four structural factors that will limit Ethereum selling pressure after the Shapella upgrade, beyond just the withdrawal methods. First, there are concerns that Ethereum sell volume will increase as the virtual asset exchange Kraken has stopped its staking service. However, if the number of validators on the Ethereum network decreases, the staking rewards for the remaining validators increase, so those who used Kraken’s service are likely to move to staking services on other platforms and continue staking.

Users who utilize liquidity staking delegation services such as Lido Finance and Rocket Pool are already participating in staking with units smaller than 32 Ethereum and receiving rewards. Therefore, even after the Shapella upgrade, there is little incentive to withdraw Ethereum.

Meanwhile, according to Korbit Research Center, as of the time of this analysis, only about 40% of those who staked Ethereum are making a profit. Ultimately, those who are at a loss are less likely to withdraw their staked Ethereum. The profitable group is likely composed of people with strong belief in Ethereum who probably participated from the early days of staking, so they are not expected to withdraw Ethereum to realize profits.

Even if the Shapella upgrade is activated, withdrawals may not be immediately made from each Ethereum staking pool. Lido Finance, which holds the largest concentration of staked Ethereum, announced that due to security audits, its own withdrawals will be possible starting mid-next month. Therefore, even with the upgrade, Ethereum selling pressure is expected to remain limited.

Jung Seok-moon, head of Korbit Research Center, said, "The Shapella upgrade will enable the withdrawal of staked Ethereum, resolving uncertainties around Ethereum staking, which will positively affect Ethereum’s fundamentals," adding, "If staking demand increases in the future, the use of DeFi (decentralized finance) protocols through Ethereum is also expected to grow."