Shanghai Upgrade: The time to stake?

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sygnum

7 min readMar 31, 2023

In the coming weeks, the long-awaited Shanghai upgrade will soon allow investors to finally withdraw their staked Ether (ETH). With developers seemingly on track to complete the upgrade without error, promising additional improvements to the network, Ethereum’s future is looking bright as it soon completes yet another major upgrade on its ambitious development roadmap.

Ethereum developers are fully committed to ensuring the Shanghai upgrade is completed without delays, which is expected to go live on 12 April.

To help you stay informed, here is a small timeline of events since our last article (which covered expectations post-upgrade).

On 1 February, the Zheijian test network went live and successfully ran its own simulation of Ether withdrawals
On 28 February, the Sepolia test network went live, and successfully ran its own simulation of Ether withdrawals
On 14 March, the Goerli test network, Ethereum’s largest public testnet and the last test run before Shanghai, went live
On 12 April, the Shanghai hard fork is expected to go live, now that all prior tests are completed

Will this lead to continued growth, an acceleration or other shifts in staking? In this article, we discuss why staking has become a popular option for Ether investors, how allowing withdrawals with the Shanghai hard fork could point to potential growth in the Ether staking ratio (compared to other Proof-of-Stake blockchains like Solana or Cardano) and how at Sygnum we provide an institutional-grade staking option, allowing our clients to stake Ether with complete trust. Read more on this below.

After the Beacon Chain launch in December 2020, investors could stake their Ether for the first time. Today, there are various ways to do so. Investors can set up a validator, use a staking pool and even receive liquid staking tokens, which are tokenized representations of Ether.

This led to a surge in the demand for staking and now there is over 17.9 million Ether staked, currently worth over USD 32 billion, which represents 14.88 percent of the total liquid supply.

The time to stake?

Staking in blue-chip cryptocurrencies, like Ether, has become an attractive option for long-term investors seeking steady gains. These investors typically have a long-term outlook and are not deterred by market volatility or periods of uncertainty. They also often avoid high-risk, high-yield investment options that are otherwise common in various decentralised finance (DeFi) products. For institutional investors, this is especially true.

The reputation of Ether as a blue-chip stem from an impressive track record of executing complex technological upgrades and demonstrating market dominance with its battle-tested platform as it weathered several market cycles and emerged stronger each time. This includes its flawless execution of the Merge — its transition to Proof-of-Stake. Ethereum’s robustness and continual recoveries have won the trust of many investors, both retail and institutional alike.

On these grounds alone, many investors claim that there is no reason not to stake Ether. Amid the crypto winter and with a meticulous development roadmap ahead, even institutions like Goldman Sachs seem to agree on its potential as a unique store of value.

So why do investors currently stake Ether?

Earn additional yields: Staking Ether provides annualised returns of 4–7 percent without having to trade their tokens
Long-term investment strategy: Staking is a compelling choice for long-term investors who are unfazed by short-term price fluctuations
Comparatively lower risk: Ether is a blue-chip cryptocurrency thanks to its popularity, battle-tested protocol, market dominance and global usage
Participating in securing the network: Staking Ether means you contribute to the overall security of the Ethereum blockchain and ecosystem
Re-invest rewards: Ether withdrawals will increase the reward incentive for re-investing now that investors can confidently receive and/or withdraw their rewards

Staking at Sygnum

While we do encourage all Ethereum initiatives that support its security and infrastructure, we are a regulated, institutional leader servicing professional and institutional clients. We act keeping their best interests in mind. This means reducing things like smart contract and other technical risks involved in the staking process, thereby making sure our clients can confidently leverage a best-in-class solution they can trust.

As the first ever bank to offer Ether staking, our offering is designed for institutional investors who prioritise security, ownership and trust. It is fully integrated into our banking platform, making it convenient for clients to stake. Here is what we provide:

Staking-as-a-Service: A self-service product that allows clients to enjoy a regulated yield-generating staking service. We manage the technical processes, like setting up the infrastructure and validator nodes.
MEV-boost for staking: Since mid-December, clients receive the maximum extractable value (MEV) when staking their Ether. This means all staked Ether currently earn MEV rewards on top of their base rewards. MEV helps organise block production and brings the best results for validators and users to earn rewards.
Bank-grade security: Our multi-custody platform, built on cutting-edge technology, offers the highest level of security where clients can comfortably stake and store their crypto assets with peace of mind.
Reduced smart contract risk: We only provide Ether staking through a deposit of 32 ETH, which is the minimum requirement needed for setting up a validator node. We do not provide pools or leverage smart contracts to create liquid staking tokens.
No counterparty risk: We do not mingle our clients’ funds. With our institutional-grade custody solution with fully segregated wallets, our clients’ staked Ether is held in individual accounts with the highest security.

How do we compare to liquid staking providers?

While other popular providers offer staking pools and liquid staking tokens, we do not.

Yes, staking pools reduce barriers to entry as they let token holders stake without running a 32 ETH validator node. However, this approach introduces additional risks as node operations are delegated to a third-party who also controls the staked funds. In addition, liquid staking tokens are also just tokenized representations of Ether — they are not pegged to Ether on a 1:1 basis and are at risk of deviating from its price.

Instead, we offer a staking-as-a-service that requires clients to lock up a minimum of 32 Ether to set up a validator. This way, our clients own the validator keys while we run the validator software. This is important for clients who manage large amounts of capital and require the highest levels of security, accessibility and trust.

It is a simple yet significant trade-off: clients can feel secure knowing that their assets are safe, accessible and kept separate from other customer funds, while we manage the technical aspects of the staking process itself.

A sweet spot for long-term investors

The option to stake Ether has become a sweet spot for many long-term investors, and with a history of strong recoveries after every market cycle, staking Ether is an excellent way to weather periods of market turbulence and uncertainty.

As staking services become more accessible and sophisticated, the Shanghai upgrade is also preparing the ground for the next exciting development, dubbed “the Surge,” which aims to increase the scalability of Layer 2s and prepare the network for sharding, which aims to provide inexpensive transactions and allow Ethereum to scale to over 100K transactions per second.

With all things considered, the future looks bright for Ethereum and its investors.

END

Learn more about Sygnum’s staking offering here.

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Disclaimer

This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual’s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.

Shanghai Upgrade: The time to stake?

Written by Sygnum