Ethereum is set to receive a game-changing upgrade in Q1 2023, called Shanghai, which will allow for withdrawals and reinforce its position as the settlement layer for decentralized finance (DeFi). The upgrade is expected to result in a surge in demand for staking ETH, which could lead to 80% of the ETH supply being staked by the end of 2023. The upgrade is also expected to provide major opportunities for altcoins focusing on liquid staking derivatives. Lido, the most popular liquid staking protocol, is likely to lose market share to other protocols such as Rocketpool and Frax Finance, which are offering higher APRs.
Ethereum: The Settlement Layer for Decentralized Finance
Ethereum has become the go-to settlement layer for decentralized finance, with its successful launch of ETH2 and staking. If your blockchain isn’t connected to ETH, then it’s a blockchain that’s dead in the water. This is why every blockchain now has a bridge back to Ethereum. But Ethereum isn’t stopping there. In the first quarter of 2023, a game-changing upgrade is coming for ETH, which will reinforce its position as the DeFi settlement layer and make certain altcoins skyrocket. Let’s find out more about this upgrade and those altcoins.
Ethereum’s Shanghai Upgrade
The next upgrade after the merge in Ethereum is withdrawals, which are locked since December 2020. Withdrawals are a confirmed go with Ethereum’s next upgrade, Shanghai. Ethereum developers conducted an execution layer meeting and confirmed that it will be released soon. This is bullish news because before Shanghai, Eth 2.0 staking was unavailable for withdrawal. This barrier out of the way will give rise to the demand for staking ETH, and the amount of staked ETH will explode.
The Rise of Staking ETH
According to the Mark of DeFiYield App tweet, by the end of 2023, 80% of the $ETH supply will be staked. The amount currently stands at only 14%, and Ethereum is coming up on half a million validators. This number is only going to increase even further with the implementation of withdrawals. This growth symbolizes a mark of distinction in the world of blockchains where Ethereum is on another level compared to its competitors. Ethereum stands with 15,525% more validators than the next most robust, Cardano, which has about 3200 validators. Eth2.0 staking validators are required to have a 32 ETH stake on their validator node. To stake, one can use an avado i7, the plug-and-play staking hardware, to take the complexity out of the staking process.
The Rise of Liquid Staking Derivatives
With withdrawals, a new narrative will emerge, providing opportunities for altcoins focusing on liquid staking derivatives. Liquid staking is a system where users pool together their Ethereum, and the protocol stakes it in return for issuing users with Liquid Staking Derivatives (LSDs) to represent their stake of Ethereum in the pool. Lido is the most popular LSD protocol, accounting for 30% of market share, and has been controlling nearly 30% of ETH validators. However, LIDO is a short, and with Shanghai coming in the next couple of months, other LSDs protocol will compete against LIDO’s market share.
The Future of DeFi
Two protocols are making headway in the market: Rocketpool and Frax Finance. Rocketpool has been on the market for the longest time, and with the addition of their governance token listing at major exchanges like Binance and Kucoin, Rocketpool’s market share is expected to rise. FRAX Finance is offering the highest APR in the business for staking with them. Users deposit ETH and receive frxETH, which can be used in DeFi applications, such as the ETH/frxETH Curve pool. Since Frax Finance is one of the largest $CVX holders, users can earn highyield on Convex Finance. Frax is replacing Lido in the journey to become the go-to protocol for LSDs.
The future of decentralized finance has Ethereum as the backbone and is continually innovating, with upgrades ensuring growth in the ecosystem.