The Shanghai upgrade introduces a series of modifications to the Ethereum protocol, enabling users to unstake or withdraw their staked ether (ETH) for the first time.
Prior to the Shanghai upgrade, staked ETH was locked within the Ethereum blockchain. This upgrade incorporates a change to the Ethereum protocol, allowing the unlocking of staked ETH.
Shanghai represents the first significant alteration to the Ethereum blockchain since its transition from a proof-of-work to a proof-of-stake consensus mechanism. That transition, known as The Merge, established the technical groundwork for future scalability enhancements on the Ethereum blockchain. Curious about Ethereum's shift from proof-of-work to proof-of-stake? Explore our guide to The Ethereum Merge.
The Shanghai upgrade currently consists of four Ethereum Improvement Proposals (EIPs):
EIP-3651 - Warm COINBASE
EIP-3855 PUSH0 instruction
EIP-3860 Limit and meter initcode
EIP-4895 Beacon Chain withdrawals
EIP-4895 is the most prominent of these changes.
This EIP enables users who have staked their ETH to support Ethereum's innovative proof-of-stake "Beacon Chain" to withdraw or "unstake" their funds for the first time. After the Shanghai upgrade, approximately $33 billion worth of staked ETH could theoretically be withdrawn and sold.
However, the likelihood of a Shanghai-triggered ETH sell-off remains minimal. In fact, a successful Shanghai upgrade is anticipated to encourage even more ETH staking in the upcoming months, further solidifying the network's stability and growth.
This is likely to happen for a few reasons:
Alongside Shanghai, a second hard fork called Capella will occur. As a result, you may see "Shanghai/Capella" or "Shapella" mentioned concurrently leading up to the network upgrade.
With Ethereum now operating a proof-of-stake execution chain and a consensus chain (Beacon Chain), new changes can necessitate hard-forking both layers.
In this case, Shanghai refers to the forthcoming execution chain hard fork, while Capella denotes the consensus chain hard fork.
Index Coop has no influence over the Shanghai testnet's success or the timing of the Shanghai upgrade. The expected date of the upgrade is April 12, 2023.
The Shanghai upgrade should reduce risk and improve the safety of Index Coop products, most notably icETH. Since staked ETH and ETH will be exchangeable 1:1, this eliminates the price divergence that led to liquidation concerns and a number of small rebalances during 2022’s Terra/Luna/3 Arrows-induced volatility.