Ethereum (ETH) Shanghai Upgrade Brings Record Inflow to Ether Stakes

Ethereum’s Shanghai upgrade saw a record weekly inflow of ether (ETH) deposits for staking last week, driven mainly by institutional staking service providers and investors reinvesting rewards after withdrawals, crypto analysts said.

Investors deposited about 571,950 ETH tokens into stake contracts, worth more than $1 billion, according to a Dune Analytics data panel created by Tom Wan, an analyst at digital asset investment firm 21Shares.

The Ethereum blockchain completed its long-awaited technology upgrade, commonly called Shanghai or Shapella, on April 12. The initiative enabled the withdrawal of tokens previously unlocked in stake contracts for the first time. It was the last key step after last year’s Merge to complete the network’s transition to validating transactions through the efforts of a mining-based system.

ETH, the network’s native token and the second-largest cryptocurrency by market capitalization after bitcoin (BTC), rallied following the successful implementation of the upgrade, but gave up all of its gains last week in a broader crypto market selloff, driven largely by macroeconomic concerns about inflation and a looming recession.

Institutional staking services drove the deposit surge in ETH staking, Wan tweeted.

Since the Shanghai upgrade went live, the top five institutional staking service providers – Bitcoin Suisse, Figment, Kiln, Staked.us and Stakefish – have staked a combined total of 235,330 ETH, worth around $450 million, according to 21Shares’ Dune dashboard.

CoinDesk reported last week that the Shanghai upgrade increased demand for ETH stakes among institutional investors, including traditional financial firms.

The increased interest also highlights that enabling withdrawals from Ethereum’s proof-of-stake chain has significantly reduced the liquidity risk associated with unlocking tokens, Wan added in a separate chirping.

Another likely catalyst for the record inflows has been investors choosing to reinvest their previously earned and withdrawn rewards from efforts, Anders Helseth, vice president of market research firm K33 Research, explained in an emailed statement.

Through the first eight days after the upgrade, investors withdrew about 900,000 ETH in stake rewards. Meanwhile, stake deposits amounted to around 667,000 tokens, which was six times larger than the amount deposited during the last eight days before withdrawals were allowed.

The dynamics indicate that investors decided to take back a large part of the withdrawn rewards, Helseth wrote.

The Shanghai upgrade was a “net positive” in terms of total bet inflow, Noelle Achison, a market analyst and former head of research at Genesis Trading and CoinDesk (both subsidiaries of Digital Currency Group), wrote in a newsletter on Monday.

“So far, the rhythm of new deposits has exceeded the amount leaving the network, whose rewards can be excluded,” she said.

The reason for separating reward withdrawals from full withdrawals comes from how Ethereum’s staking system works. Individual stakers or staking services must unlock exactly 32 ETH to open a node and earn rewards to secure the network. Keeping the accrued rewards in the validation node does not improve the node’s ROI. Acheson explained that it is logical for stakers to withdraw rewards, collect tokens and establish new nodes to increase potential returns.

“It appears that this is what is happening,” she said. “Overall net inflows have been positive, indicating that a significant portion of these rewards are being repeated.”

The trend of reinvesting rewards is also potentially a positive sign for the ETH price as it reduces selling pressure, according to Acheson, “which will likely end up being much less than many feared.”