What Are The Potential Outcomes Of The ETH Shanghai Upgrade?

The Ethereum network is scheduled to undergo a major upgrade known as the Shanghai Upgrade. This upgrade is expected to introduce significant changes to the network. In this article, we will delve into what the Shanghai Upgrade entails and what it means for you.

What is the ETH Shanghai Upgrade?

The Shanghai Upgrade is the next major update to the Ethereum network, which is set to introduce several changes to the protocol to improve the network's efficiency, reduce gas fees, and enhance its security. The most significant update is the capability to withdraw previously staked ETH from as far back as December 2020.

For a more technical explanation, you can read more here.

What are the different scenarios that may play out?

The Shanghai Upgrade represents a significant change for the Ethereum network, and there are various scenarios that could potentially unfold after the upgrade.

Scenario 1: Validators Could Sell ETH on Unlock

At the time of the Shanghai Upgrade, there is approximately 1 million in ETH rewards that will be unlocked over 4-7 days. This amounts to ~0.82% of the total ETH supply and may result in an oversupply of ETH in the market, leading to a price decline.

Scenario 2: Validators Could Keep ETH Staked

This scenario is also likely due to the cost basis of most Ether validators being above the current exchange rate, which means that they are still at a loss.
Unstaking and selling their rewards in ETH will result in prolonging the time it will take to recoup their investments compared to just keeping their ETH and rewards staked. Moreover, if they sell now, their assets will be worth less than what they could potentially be worth when the price increases.

Additionally, the presence of liquid staking derivatives also provides users with the flexibility to keep their positions fluid while being exposed to the rewards given by the platform.

For a more comprehensive discussion, you can visit this highly technical research by Galaxy Digital here.

What can one do to capitalize on these big Ethereum events?

We'd like to summarize a few possible routes users can take at events that create market volatility. None of the advice below is financial advice, this piece should serve as educational material.

1. Hedge your portfolio

You can use DeFi derivative protocols such as Dopex and GMX that offer financial instruments to hedge your portfolio and limit downside risk if you assume prices go down.

2. Remain flat

If you don’t want to take the risk of your portfolio going down, you can sell your assets and protect your capital in dollar value.

3. Buy more ETH

If you're bullish, you can purchase more ETH or the token of your choice and potentially make a profit.

4. Use Sushi to LP

There will be an expected rise in volatility in the coming days once the upgrade is completed.
So there's a good chance that trading volume will increase, providing users an opportunity to LP and be rewarded with fees.

Sources: https://www.galaxy.com/research/insights/how-could-shanghai-unlocks-affect-the-price-of-eth/

Disclaimer: Please bear in mind that none of the above information should be interpreted as financial advice. It is recommended that you always conduct your own research before making any financial decisions.

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