Ethereum on-chain data suggests ETH sell pressure could be a non-event after the Shanghai upgrade

The next Ethereum (ETH) The Shanghai hard fork is scheduled for March 2023 and the upgrade will culminate the network's move to proof-of-stake (PoS) that began during the "Merge" on September 15, 2022. Once Shanghai is implemented, previously blocked The ether will gradually become liquid. for the first time since December 2020.

according to chain etherscan data, more than 16.6 million Ether is currently locked in the PoS staking protocol, which was valued at $28 billion on February 16, 2023. Ethereum's move from proof of work (PoW) to PoS has started to achieve the original goal which was to make the Ether supply deflationary. In the 154 days since the merger, over 24,800 Ether have been burned to make the token deflate by 0.05% per year.

In. As of February 16, the total supply of Ether is 120 million, which means that a little over 10% of the supply will be unlocked with performance rewards starting with the Shanghai update.

Let's explore what on-chain metrics can help identify what may happen during the Shanghai update.

A portion of locked ETH is liquid thanks to liquid staking derivatives

In order to benefit from performance rewards before the Shanghai update, investors had to lock up their Ether and execute a trusted trade. node. The minimum stake requirement of 32 locked Ether is fully illiquid, meaning traders had limited utility options for these coins.

Liquid Stake Derivatives (LSD) allow users to profit from staked Ether while retaining the ability to sell the received derivative token on the secondary market. The LSD protocols took a fee and locked up the native Ether, giving users another token that represents a stake in the pool.

Derivatives of liquid staking did not gain prominence until Lido and other protocols began to see a cash flow rush after the Merger. Since Ether staking began, liquid staking has overtaken illiquid staking. As of February 13, 57% of staked Ether is liquid versus 43% illiquid.

Since most of the Ether locked up is via LSD, investors currently have access to liquidity, which could reduce selling pressure after Shanghai.

Very few participants make a profit

In December 2020, when Ethereum staking opened, the price of Ether was between $400 and $700. Rather, many investors began betting when Ether was close to its its highest point of $4,200. According to Binance:

"We note that a considerable amount of ETH was staked (around 2 million) at prices in the range of US$400 - 700, this represents early entrants in December 2020, a group that is likely illiquid given that the stake liquid was much less well known at the time.”

Due to Ether's 69% correction since hitting an all-time high, many of the investors who staked their Ether are currently at an unrealized loss.

The minority of the participants making profits are likely to be strong believers in the Ethereum network, as the liquidity date is still unknown at this time. With a large number of losing participants and those who are profitable are likely to be long-term investors, the price of Ether may not see a massive dump when the tokens may stop participating.

Lido outperforms solo punters

It's January 2, 2023, Lido officially surpassed MakerDAO as the highest TVL in DeFi. As of February 13, Lido is also the largest staking entity in Ether. With over 5 billion Ether staked on Lido, the protocol represents 29.2% of all entities. Notably, almost 30% of all participants have the option of current liquidity through Lido.

Solo participants running nodes took the risk of running nodes from home or with a small group. The lone participant probably believes that Ether is a long-term currency since nodes carry costs and risks. Solo participants currently represent 24.9% of all participants.

Since almost 55% of all Ether staked is held by individual players or Lido, the risk of an Ether price crash can be reduced.

While the on-chain data surrounding the Shanghai hard fork may be bullish for the Ethereum network, some analysts are still predicting the possibility of a sharp drop in ether price.