Summary The Shapella Upgrade successfully went live, enabling staking withdrawals. Although there were concerns that this upgrade would cause a selloff, the opposite happened as investors focused on the long term positives of the upgrade. Ethereum has many more impactful upgrades in the pipeline. Thesis Ethereum ( ETH-USD ) remains one of the most compelling cryptocurrency investments because its developers are constantly striving to improve it. The Shapella Upgrade is just the latest example of that, as staked Ethereum can now be withdrawn. The Shapella Upgrade In an article I wrote in February, I noted that an Ethereum upgrade enabling staking withdrawals was imminent based on successful testnets run by Ethereum's development team. As I stated then, the key benefits of this upgrade include: The ability to earn a yield without sacrificing liquidity. Increasing the network security by making staking (and thus decentralized transaction validation) more attractive to more Ethereum holders. De-risking investment by putting a major upgrade in the rear view and further proving the competence of the development team. The Shapella Upgrade finally went live on April 12th, enabling staking withdrawals for all users. Some investors were concerned that despite the aforementioned benefits, this upgrade would increase short-term selling pressure as staked Ethereum became readily available for sale. However, Ethereum has risen 12% against the U.S. Dollar over the past week, essentially invalidating this concern. As noted by CoinDesk , less than 1% of staked Ethereum was queued up to be withdrawn the day of the upgrade, proving that those who staked Ethereum are mostly long term holders. While it's important to remember that Ethereum is still a risky and volatile asset that can rapidly decline for any reason (or no reason at all), the Shapella Upgrade has only increased my long-term bullishness about Ethereum. After the Shapella Upgrade, Ethereum becomes very similar to an appealing growth stock. It's deflationary, offers a yield, is liquid, is growing quickly, and has proven that it has some practical uses in areas like decentralized finance and smart contracts. Thus, I continue to expect Ethereum to outperform the market in the long term despite some volatility along the way. Caveats It's difficult to find arguments that the Shapella Upgrade will have negative impact, but for balance I'll point out a couple issues. Even after the upgrade, there's still a limit to how much ETH can be unstaked each day, an issue which is arguably exacerbated by exchanges that offer staking. Coinbase is currently quoting a ~21 day wait time to unstake Ethereum. Until this wait time declines, it's fair to argue that staked Ethereum isn't fully liquid. Another concern for risk-adverse investors is that Ethereum's staking yield is offered in ETH rather than USD, which means that its value will fluctuate with Ethereum's price. This differs from a dividend on a stock, which has a fixed USD value regardless of fluctuations in the stock price. Thus, Ethereum offering a liquid yield won't necessarily help it establish a price floor or reduce volatility. A final concern is that the success of this upgrade and Ethereum's rapid price increase over the past few months has created a sense of euphoria among many investors. Although Ethereum is still well below its all-time highs and we're just now entering a historically bullish point in crypto's four-year cycle, contrarians would argue that it's not ideal to buy when investors are happy. What Comes Next ethereum.org Since my last article, Ethereum's team has made significant updates to their roadmap . The next step after the Shapella Upgrade was formerly sharding, which would improve Ethereum's scalability by decreasing the memory footprint of validators. However, the roadmap now has this note about sharding: Layer 2 rollups have developed much faster than expected and have provided a lot of scaling already, and will provide much more after Proto-Danksharding is implemented. This means "shard chains" are no longer needed and have been dropped from the roadmap. The removal of sharding from the roadmap frees up developers' time to focus on other upgrades, which arguably will be more impactful to average Ethereum users. Among other ideas, these upgrades focus on lowering Ethereum's fees, strengthening security and improving the user experience: Danksharding: A way to include temporary data in transactions, which should lower transaction costs and improve scalability to >100,000 TPS. Single Slot Finality: Decreasing the time to finalize a transaction from 15 minutes to essentially instantaneous. Proposer-Builder Separation: Making it harder for validators to censor transactions by hiding transaction data prior to validation (this also enables Danksharding). Secret Leader Election: Making it more difficult to hack validators by obfuscating information about which validator will be the next to propose a block. Account Abstraction: Allowing smart contracts to serve as wallets so that users don't need a separate account/wallet to use Ethereum. This will result in better user onboarding experiences and enable new functionality like batched transactions, shared transaction fees, and account restoration without a seed phrase. Verkle Trees & Statelessness: Allowing validators to work without storing the entire state database. This will make it possible to run validators on lower end hardware with less disk space. It's unlikely that any of these upgrades will be as immediately significant for investors as Ethereum's switch to proof-of-stake, which made Ethereum deflationary instead of inflationary, lowered transaction fees, reduced environmental impact, and allowed investors to earn a staking yield. However, the impact of these upgrades on end users is still profound, as Ethereum is constantly working to become faster, cheaper, more secure, and easier to use. Of these upgrades, the one that I'm most excited for is account abstraction. I believe that allowing people to use Ethereum for transactions without making them set up an unintuitive Web3 wallet will make the network accessible to a lot more people. Single Slot Finality is also an exciting one, because a faster network is objectively better. Conclusion Now that staking withdrawals are live, Ethereum is a more compelling investment because it offers a more liquid yield. The Shapella Upgrade seems to have pushed Ethereum's price higher as a result, and Ethereum has many more upgrades in the pipeline that could catalyze increased usage and a higher price. Thus, Ethereum remains a compelling investment which is still well below its all-time highs despite its recent rally.
