Shanghai Upgrade – How It Could Affect Ethereum and LSD Tokens
On April 12, 2023, the Ethereum chain rolled out the Shanghai upgrade. The update implemented a series of proposals, namely EIP 3651, also known as ‘Warm Coinbase,’ that decreased the gas fees for transactions that go through the Coinbase address, EIP 6049, proposing an improvement of security and reliability to the smart contract and the much-anticipated EIP 4895 that enabled staking withdrawals on Ethereum. In the piece below, we will explore how the upgrade may affect the price of Ethereum and LSD (liquid staking derivatives) projects and tokens in the long run. Exploring the background To better understand the upgrade, we begin by closely examining the problem it aims to solve. In December 2020, Ethereum went through an upgrade from the PoW (proof-of-work) system to PoS (proof-of-stake) consensus mechanism in an event better known as ‘The Merge.’ Ethereum has achieved relative scalability with its consensus mechanism, as it no longer employs time consuming problem-solving consensus mechanisms such as Bitcoins proof-of-work. Still, the chain had a downside takers couldnt withdraw their staked Ethereum tokens until a designated deposit period was over. To solve this issue, some projects have created protocols allowing users to stake Ethereum and benefit from liquidity. These protocols utilize a type of token pegged with Ethereum,