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In the last Ethereum Core Developers meeting on December 8, it was decided that the Shanghai Upgrade will be scheduled for March 2023. This hard fork is critical, developers note. Specifically, it will officially mark Ethereum’s complete transition to a proof-of-stake network where all problems from the Merge will be resolved.
Ahead of this upgrade, MEXC-related tokens have been edging higher. By January 16, ETH had rallied to its highest point in a week, adding 20.44%. Meanwhile, Lido DAO’s native token, LDO, was among the top performers in January 2023, adding 46.14% and posting their seven-day highest increase. The same surge was posted by Rocket Pool 9RPL), which added 25.33%. Notably, LDO trading volumes in Spot and Futures trading had increased by more than 110X from January 2 to 9. According to MEXC Research, a cryptocurrency education brand jointly created by cryptocurrency trading platform MEXC and its communities. It aims to provide an in-depth analysis of cryptocurrencies, Web3, public chain, DeFi, Metaverse, GameFi, L2, NFT, and other sections to help users understand cryptocurrency cutting-edge information.
There are several improvements in the Shanghai Upgrade tags. For instance, fundamental changes will enhance Ethereum’s Virtual Machine, extending its functionalities. Besides, users could withdraw staked ETH locked from the Beacon Chain. Presently, users who locked their assets, initiating the official move from the proof-of-work network to the staking system cannot move their assets. According to trackers, over $25 billion of ETH is locked in the official Beacon Chain deposit address. Additionally, the upgrade would initiate changes that would drastically reduce Gas fees on Layer-2 networks. This will be done by equalizing block size data and adding a CALLDATA function.
The Shanghai Upgrade will also see the official introduction of EIP 3540. The improvement proposal, also known as the EVM Object Format (EOF), calls for separating code and data. Should this proposal sail through, Ethereum validators will benefit immensely. Moreover, there will be added benefits in smart contract execution efficiency. Specifically, there will be a new smart contract section that helps optimize processing. Additionally, it will solve complex functional modules, including account abstraction and the overall control flow in the EVM.
The Shanghai Upgrade would massively benefit liquid staking protocols, including Rocket Pool and Lido DAO. These platforms break down the cost of participation, allowing even more ETH holders to stake their coins, even if they hold less than 1 ETH. This could increase the staking ratio above the current 14 percent. This is lower than other ratios in competing smart contracting platforms, especially Cardano, the BNB Smart Chain (BSC), and Solana. More importantly, the Shanghai Upgrade allows investors more flexibility to stake and earn network rewards away from what Ethereum developers created. There are options for liquid staking protocols like Rocket Pool, Lido, Stakewise, Frax Finance, and Ankr Protocol. From Q4 2022, the total value locked (TVL) of liquid staking protocols has rapidly expanded. Trackers show that Lido has the highest TVL exceeding $8.3 billion, making it the world’s largest DeFi protocol, surpassing MakerDAO and Uniswap.
As liquid staking protocols’ TVL expand, the Shanghai Upgrade will also ease ETH transaction processing on Layer-2 solutions like Arbitrum and Optimism. These platforms use rollups to process transactions and scale the base layer. By reducing transaction processing and fees, more users would prefer using Ethereum infrastructure, boosting adoption and drawing more developers. Vitalik Buterin, the co-founder of Ethereum, admits that Layer-2 solutions are now an indispensable part of the smart contracting platform. They play a crucial role in ensuring transactions are processed cheaply, improving the general cost-effectiveness of the network.
There is a general expectation that the Shanghai Upgrade will drive the price of ETH higher. This could be true. Earlier, the implementation of EIP-1559 in Ethereum introduced the base fee and overhauled how fees are charged, and pumped prices. Therefore, as ETH and crypto prices bottom up after last year’s bear cycle, prices could recover, even rallying to 2021 highs. The staking ratio could increase and improve user and investor confidence as Ethereum developers progressively implement upgrades as part of their multi-year roadmap.
