The road to Shanghai is nearing its end and withdrawals are visible on the horizon. With the Shanghai upgrade, staked Ether can be fully withdrawn by stakers.
So, why does this upgrade matter to you, and what can you do to maximise your gains? Let’s find out!
Here’s a quick TL;DR!
Shanghai is here!
Staked ETH can now be withdrawn — confidence in liquid staking providers will increase.Following Shapella, we have a pool live on Ethereum: rETH-RPL !!!
You can use Timeswap to earn additional yield on your holdings, here are some simple ones:
1. Simple rETH lending
2. Interest/staking rate artbitrage
3. Directional betsView more details down below!
Shanghai Noon
Ethereum staking is the process of holding Ether (ETH) in a specialised contract called a validator node to participate in securing the Ethereum network while earning rewards in the form of additional ETH.
To stake your ETH, you commit it to a validator node directly or through a staking provider. Once committed to a validator node, staked ETH is locked (until the Shanghai upgrade). In return for this commitment, stakers earn a percentage of the Ethereum network’s transaction fees and block rewards.
A subsegment of staking providers — liquid staking providers (e.g., Rocketpool, Lido, etc.) — provide a liquid staking token (LST) in return for staking your ETH through them. These LSTs are “backed” by the underlying ETH locked in the validator nodes, and can be then used in DeFi — capital efficiency!
The Ethereum Shanghai hard fork is now here (April 12, 2023) — staked ETH can now be unstaked!
The specific steps and requirements for unstaking will depend on the staking provider you are using, but will generally involve the following steps:
- Initiate the unstaking process: You will need to submit a request to your staking provider to unstake your ETH. This request may involve a waiting period, during which time your staked ETH will continue to earn rewards.
- Wait for the unstaking period: After you initiate the unstaking process, there will typically be a period of time during which your staked ETH remains locked and earns rewards. This period can vary depending on the staking service.
- Receive your unstaked ETH: Once the unstaking period is over, your staked ETH will be unlocked and transferred back to your wallet. You will then be able to use your ETH as per usual.
At current estimations: over a period of 7 days, c. 800,000 withdrawals can be processed.
So, you may have to wait a while to get your original ETH back. This is why it’s better to use a staking service like Rocketpool or Lido to stake instead of directly committing to a validator node — you can use their LSTs in DeFi while earning yield on your original ETH.
Pool Details
Following Shapella (Shanghai + Capella), there will be a pool going live.
Network: Ethereum
Pool: rETH-RPL
Expiry: April 27, 2023 — 12pm UTC
Transition Price: 0.013 RPL/rETH
So, what are you waiting for?
Leverage your holdings for profit with no liquidations while time is on your side!
LST-rippin’ through time
Now onto the part that really matters: how do you make money on your holdings?
First, you have to make sure that you are staking through a liquid staking provider (e.g., Rocketpool, Lido, etc.).
Without these, your staked ETH is locked until you unstake them — it has no way to interact with DeFi unless they are withdrawn.
Now that you have some LSTs on hand, here are some ways you can utilise Timeswap to fill up that yield meter!
Simple Old Lending
This is the simplest strategy to earn yield.
You simply lend rETH into Timeswap pools and you will earn interests from borrowers, on top of the staking APR.
Bear in mind, by lending in Timeswap pools, you have to pay attention to the transition price (i.e., 0.013). If the price (or ratio rather) of RPL/rETH falls under 0.013, you will likely receive RPL that the borrowers have defaulted.
Capturing the Spread on Timeswap
You are essentially arbitraging the rates between Timeswap and the staking APR, and it’s relatively low-risk!
For example, if you borrow rETH on Timeswap for 2% interest and the staking APR (of liquid staking providers; Rocketpool) is 4%, you are earning the 2% spread. Of course, there are other things you need to consider like the CDP and your leverage.
This simple strategy is not exclusive to Timeswap, however when doing such in other platforms, short-term price volatility is a huge consideration. If your collateralised loan goes over the LTV threshold, you are at risk of liquidations.
While the market value is mostly situated in such protocols, there is a cascading effect on liquidations: ETH sold on the market pushes the price down, leading to more debt going into liquidations, and the cycle goes.
As you can see in the figure below, a lot of positions are at risk of liquidations if ETH was ever to fall below the $1000 level. While this is an unlikely scenario, it is always better to be safe than sorry. In addition, this scenario will play havoc with interest rates across the board, meaning you can’t reliably borrow from such sources to backstop your soon-to-be underwater positions.
When you borrow/lend in any Timeswap pools, you are in control of four crucial things:
- Your directional bias — Bullish or Bearish
- Your interest rates and CDP — Fixed at the time of borrowing
- Your time preference — You choose the pool that best suits your needs
- Your liquidation preference — None 😉
All you really need to do is be aware of the transition price and act accordingly!
With this, you get a non-liquidatable fixed term loan and no need to be wary of liquidation cascades.
Directional Bets
When you’re borrowing on Timeswap, you are already making a (subtle) bet on whether your asset will go up or down.
But, you can always increase your directional exposure by using perpetuals to increase your conviction’s exposure. If you think the Shanghai upgrade is bullish short-term, why not put your money where your mouth is?
So here’s how you can do such:
- Answer the question: Are you bullish or bearish in the given time span?
- Borrow rETH by posting your collateral (RPL in this case).
- Trade long/short ETH (or RPL, or anything) perps in a perp DEX of your choice.
Now all you have to do is pray real hard that the market agrees with you and boom…you made money! Or lost it.
Your Timeswap debt/lending positions in itself is essentially an option position. The possibilities to create exotic strategies are endless! Here’s a cool idea: spot some juicy LP opportunities and leverage your assets to LP, without losing your base exposure!
Withdrawals are just the start — what’s next?
Many people think that withdrawals are just about showing that staking works as expected. This is true, but not the entire truth.
The bull case is now that withdrawals are proven to work, the liquid staking model presents less risk. Thus, the amount of staked ETH will eventually go up and most of it will be through LSTs. Because who doesn’t like having access to your funds, all while it’s earning interest?
If this comes true, DeFi will gain another massive liquidity source. Any protocol that is well positioned to capture this liquidity will see massive adoption (Timeswap’s one of them 😉). Hold your moonboy hat — unstaking will still have a daily maximum withdrawal limit, don’t expect too much freed capital.
The bear case is also that withdrawals work as expected, so more stakers can withdraw and sell their positions, driving down the price. With over 3.3 million ETH ($6 billion) of potential sell pressure in the first 8 weeks, things could get really ugly. But, this is why Timeswap is perfectly positioned to capture both sides of the move, with non-liquidatable loans allowing for price discovery without negatively impacting the greater DeFi landscape!
All in all, increased capital efficiency (through leverage and adoption of LSTs) means more circulating capital in the long run. Maybe put your moonboy hat back on, not now, but soon.
Lastly, why Timeswap?
Volatility is a feature of crypto. It presents opportunity to a lot of traders and investors.
But it’s a burden for people with leveraged, they sweat when their positions are at the verge. With Timeswap, worry not about hefty liquidation fees. Also, if you think the value of collateral will dive even deeper by your maturity, you can just forfeit it — essentially covering your losses.
Volatility also means sudden appetite for leverage/deleverage, which will be reflected in the borrowing/lending rates in your conventional lending protocol.
Now you have two things to worry about — 1) avoiding liquidations and 2) monitoring interest rates. Though not too often, better safe than sorry!
Conclusion? Timeswap provides the safest, most reliable way to leverage your LST (and just anything).
No Liquidations, No Oracles, No Gods, No Unpredictable Rate Spikes! Just swapping your tokens through time.
In case you’re new to Timeswap, you can refer to our User Guide to navigate fluidly through the dApp.
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