What are withdrawals?
Withdrawals are the next upgrade after the merge in Ethereum's roadmap. The upgrade will allow ETH 2.0 staking validators, who are required to have a 32 ETH stake on their validator node, to withdraw their stake. Since December 2020, any person who staked ETH had their 32 ETH locked and unable to withdraw until the Shanghai upgrade.
Why is this bullish?
Before the Shanghai upgrade, ETH 2.0 staking was unavailable for withdrawal, making many users skeptical of staking ETH. With this barrier out of the way in March, the demand for staking ETH is expected to rise exponentially. As at the time of this writing, Ethereum has over 500,000 validators, and with withdrawals implemented, the amount of staked ETH is expected to increase tremendously. It is anticipated that by the end of 2023, 80% of the ETH supply will be staked, compared to the current 14%.
Implications for Altcoins
With the Shanghai upgrade, certain altcoins that focus on liquid staking derivatives will experience major opportunities. Liquid staking protocols enable users to pool their Ethereum and have the protocol stake it on their behalf, after which users are issued Liquid Staking Derivatives (LSDs) to represent their stake of Ethereum in the pool.
As withdrawals open up, the market share for certain LSD protocols is expected to rise tremendously, particularly since not everyone has 32 Ethereum to stake. Lido has been the most popular LSD protocol since its launch in December 2021. However, with Shanghai coming in the next couple of months, other LSD's are expected to eat heavily into Lido's market share.
Conclusion
The withdrawals upgrade is expected to provide Ethereum with a significant boost and reinforce its position as the DeFi settlement layer. It will also offer opportunities for altcoins that focus on liquid staking derivatives to thrive. Ethereum remains the blockchain of choice for DeFi, and the Shanghai upgrade will undoubtedly take its performance to new heights.
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