029 – The second largest network in the market is once again under the spotlight of the entire crypto industry.

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Shapella is a new term coined by Ethereum developers. Part of Shanghai and Capela, two updates to the execution and consensus layers respectively of its blockchain. This implementation will allow users to withdraw the ether units they have deposited in the network in the form of staking to receive remuneration for supporting the network as network validators.

Considering that Ethereum is the second project with the largest market capitalization, and that it has hundreds of protocols assembled on its blockchain and millions of active wallets, expectations on how the process will be completed are very high. In fact, it is estimated that more than one million ether generated as rewards during the last months could reach the market and with it generate high volatility.

A breakthrough for staking in Ethereum

The implementation of Shapella marks an important moment for Ethereum, as it completes the transition to a different validation system called proof-of-stake from the previous proof-of-work. This followed the “Merge”, which at the end of the previous year merged the previous Ethereum chain with the new Beacon Chain, which launched in December 2020. Although ether holders could deposit their cryptocurrencies and earn rewards, they could not withdraw their money until now. To address this, companies such as Lido Finance and Rocketpool issued tradable tokens to provide more flexibility to users, known as Liquid Staking Derivatives (LSDs), thus creating a secondary market for derivatives of Ethereum itself.

However, ether’s staking rate stands at only 14.9%. This is well below the 60.1% average for the top 20 proof-of-stake networks, and is likely due in large part to the technical and liquidity risks that currently exist with Ethereum’s pre-Shapella staking. Many hope that the ability to withdraw funds will ease the staking process and encourage more people to join. This could even generate what some are pointing to as a “staking supercycle,” with an increase in deposits and interest rate.

Others companies offering tradable tokens (LSD) are expected to benefit from this growth. In fact, LSD governance tokens have been one of the best performing assets in 2023, with Lido (LDO), Rocket Pool (RPL) and Frax (FXS) up 103-135% versus the dollar and 17-37% versus ether (ETH) so far this year.