About the editor: Spencer Noon is co-founder of Variant Fund. If you fit one of these personas, reply to this email and say hi 👋

• Ethereum’s Shapella upgrade was activated on Wednesday evening. The upgrade passed without major issue on the network. The level of missed block proposals briefly rose on the network after the upgrade but was seen recovering to a more normal rate going into Thursday afternoon.

• The upgrade brings the long-awaited function of staked ETH withdrawals. As of Thursday afternoon, 5.5K validators have fully exited, and 17K are exiting in total. Exits are governed by a parameter known as the “churn limit,” and a maximum of 1,800 validators can currently exit per day.

• Ethereum transaction fees rose only slightly in the immediate hours after Shapella. Because withdrawals are processed as state changes, and don’t require payment for gas like in normal Ethereum transactions, they were not expected to directly cause congestion on the network.

• Initial withdrawals of staked ETH from the Beacon chain peaked within the first 12 hours of withdrawal being open, with almost 12k ETH (~$25 million) withdrawn in one hour on the morning of April 13th. After that, withdrawals have trended downwards. At the same time, ETH staking stayed less consistent but hit several peaks, which were especially noticeable when compared to earlier pre-Shanghai deposits.

• In the first day and a half of unstaking, 65% of withdrawals from the Beacon chain headed to Lido, according to data from Flipside Crypto (56% according to Nansen). Based on Flipside labels, 79% of unstaked ETH was sent to institutional addresses.

• Most of these initial withdrawals took out only the accumulated rewards. 97% of all withdrawals (127K validators) before April 14th amounted to 5 ETH or less. Next were the withdrawals of 32 ETH or more, which represented 225 validators and 7,585 ETH total.

• According to data from Nansen, of the 569K validators on Ethereum, less than 24,250 are waiting for a full exit. Of the 18M ETH that was initially staked (that’s ~$37 billion at today’s prices), only about 869,500 is being withdrawn by stakers. In fact, withdrawals have far beaten the amount of deposits in the days after the upgrade.

• About 63% of the ETH waiting for withdrawal is from a single source: Kraken. The exchange was required to shutter its staking operations as part of the settlement. It is possible that the supply side from withdrawals decreases once these withdrawals go through over the coming weeks.

  

• About 400K ETH have left exchanges since March 24th. Although net inflow to exchanges is at 75K ETH (for April 14th), it is within the normal range for deposits to exchanges. It suggests that withdrawn ETH is not rushing to sell via exchanges yet.

• Lido Finance is a liquid staking platform that has seen its TVL breach $12B - the highest since May 2022. So far in 2023, Lido Finance has consistently seen a larger ETH deposit amount versus its competitors. Lido sees ~25k-40K increase weekly - often higher than its nearest competitor Coinbase at ~24K weekly and Rocket Pool at ~2-3K weekly. We may see net outflows once Lido implements withdrawals sometime in “early May.”

• Lido’s liquid staking derivative, stETH, remains the most liquid in the market with 24H trading volume of $43M. High liquidity has enabled stETH to trade closest to spot which, in turn, has increased the attractiveness of stETH for investors due to higher levels of network effects.

• Lido’s daily active users has leveled off ~350 in 2023 where ETH holders may be waiting until the Shanghai upgrade is complete and/or Lido enabling withdrawals. Despite this, Lido still leads Rocket Pool in its active user base by 100x+.

• Total ETH staked is trending down post-Shapella despite consistent inbound ETH being deposited. According to Staking Rewards, in the 24H post-upgrade the total ETH staked is already down over 322K ETH. How could this trend lead to longer waits to stake and withdraw if it continues? The churn limit, which controls how many validator activations and full exits can be initiated per epoch, changes based on the number of active validators on the network. Pre-withdrawals, it has only increased.

  

• The current churn limit allows 8 validator activations and exits/epoch. Simultaneous demand beyond that limit must wait in line. For every 65,536 validators from the active set, the churn limit goes up or down by 1/epoch. To learn more on how the churn limit works, check Liquid Collective’s post.

• A steady decline in ETH staked could lower the churn limit to 7 in under 3 weeks. Yet ETH staked/day is trending up, +162% this week. While there is still activation capacity according to Rated, if a spike in demand meets a lowering churn limit, new stakers could face long waits to earn rewards.