Ethereum: ‘Shanghai’ will not create much selling pressure

With the “Fusion”, the Ethereum blockchain successfully mastered the biggest upgrade in its history on September 15 last year. Even before the switch to Proof of Stake (PoS), investors could stake ETH to receive rewards.

However, the prerequisite was that a minimum of 32 ETH had to be staked and could not be accessed until the next update, which means that the ETH might not be staked. This changes with the Shanghai hard fork, which is tentatively scheduled for March of this year.

As NewsBTC reportedthe upgrade is not only causing excitement, but also concern that big investors could dump their ETH on the market when they can get their hands on their tokens for the first time in over two years, in some cases.

However, the narrative of a dumpster is a myth since most people still don’t know how the output queue works. The Westie researcher published a thread via Twitter to explain the mechanism.

According to him, the withdrawal period in Ethereum works dynamically and is not static like in other PoS networks (where there is a fixed withdrawal period for those interested, which in Cosmos, for example, is set at 21 days).

This is why an Ethereum dump won’t happen

The period depends on how many validators check out at any given time. Also, Ethereum validators exiting the validator pool must go through two stages: the exit queue and the withdrawal period.

The initial queue is determined by the number of all validators and the quotient of the dropout limit, set to 2^16 (65,536). Assuming there are 500,000 validators, the abandon limit would be set to 7 based on the analysis:

500,000 / 65,536 = 7.62, which rounds up to 7.

This means that as the number of ETH validators increases, the abandonment limit also increases. Increases by 1 at every interval of 65536 (above the minimum threshold). Once a validator has successfully passed through the output queue, the validator must also wait for a time in the queue based on when the validator is cut off.

“If the Ethereum validator were not reduced, this withdrawal period would take 256 epochs (~27 hours). If they were reduced, it would take 8192 epochs (~36 days). This large discrepancy is meant to discourage bad actors,” according to the analyst. Based on these parameters, Westie concludes:

If ⅓ of the entire set of validators tried to exit in one day, it would take at least 97 days to complete. To wait the same withdrawal time as most Cosmos chains, 21 days, it would take between 6.3% and 7.2% of the validator pool to be in the exit queue at the same time.

However, the calculation is only an estimate. As the analyst explains, forecasting is difficult. However, there is a high probability that the queue will be very long at the beginning, 70 days or more, because there is recycling of validators, according to the researcher.

The reason for this is that the big players need to change their current staking situation on Ethereum, as many of the practices from two years ago are now outdated, with better staking solutions available.

“However, over time I expect it to converge to a small but sustainable amount. I don’t expect the withdrawal period to be as big as Cosmos for a long enough period of time, but we will certainly get a better indicator once the withdrawals are active,” says the researcher.

For the Ethereum price, this means that the chance of a dump because all participants sell their ETH at the same time is close to zero. At press time, ETH was trading at $1,568, approaching the crucial weekly resistance around $1,600.

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