Analysis of ETH selling pressure after Shanghai upgrade: How does partial withdrawal affect?
Author: Tripoli
Author: Tripoli
Original compilation: 0x11
The specific date of the Ethereum Shanghai upgrade has not yet been determined, but it is already in sight.Discussion around selling pressure is again rife, but no one seems to have delved into the topic from a data standpoint yet. My early exploration of this topicModel
Outdated, but still being referenced, this post will be an update.
Reading this article requires you to understand the basics of the mechanics behind Ethereum withdrawals. If you are not familiar with the two types of credentials discussed below, they are covered in detail later on.
Compared to my earlier model, the main changes are:
The control process for switching between the two types of withdrawal certificates has been clarified.
All withdrawals require 0x01 credentials, which were not set by early validators;
The operation rate limit for adding 0x01 withdrawal certificate is 16 times per block;
All 0x01 credential validators will automatically make partial withdrawals, with a maximum of 16 partial withdrawals processed per block.
The process for all withdrawals remains the same, but 0x00 validators must set their 0x01 credentials before processing withdrawals.
For more information on this process, I recommend the following resources:
ETH Withdrawal FAQDetails by Christine Kim
Record
Which validators have which credentials set?
Most analysts assume that the two types of validators (0x00, 0x01) have consistent characteristics, but this is a big mistake. When we look at the beacon chain deposits in the image below, we see that all genesis validators were created without 0x01 credentials set, which severely distorts the data.
As of today, about 20% of new certifiers do not have 0x01 credentials set up, likely individuals using outdated guidelines and institutions that have not updated their procedures.
The top adopter of the 0x01 certification system is Lido; 88% of liquidity staking providers have withdrawal credentials set up and control over 60% of validators set up to receive automated withdrawals. A naive observer might be concerned about the centralization issues this creates, but in this case Lido's mass adoption of the standard is a positive for the network.
Since Lido will cycle their rewards back to new validators to optimize their staking derivatives yield, mass adoption will clog up some of the withdrawal queues and reduce the initial volatility of withdrawals.
Aside from the heavy adopters of 0x01 tokens, most of Lido’s validators were activated early on, with the biggest uptick occurring in spring 2022 when their staking derivatives began trading at a discount. Therefore, the average age of Lido 0x01 validators is older than the average age of 0x01 validators, and they hold a large amount of rewards that can be automatically withdrawn.
Dividing the accumulated rewards by the number of validators, we get the results in the figure below, where validators with Lido 0x01 certificates accumulated an average of 1.23 ETH in rewards, while non-Lido 0x01 validators only accumulated an average of 1.06 ETH.
Validators with 0x00 credentials were heavily skewed by genesis validators who had accumulated rewards for over two years. As of February 4, 2023, such validators had an average reward of 2.47 ETH (which can be withdrawn via partial withdrawals), with the top performing validators receiving a base reward of 4.9 ETH.
After Shanghai upgrade
Once withdrawals are enabled, Ethereum will start processing partial withdrawals; scanning validators and distributing rewards to validators in the 0x01 pool. At the same time, 0x00 pool validators requesting to switch their credentials to 0x01 will start filling the 0x01 pool. Both operations occur at a rate of 16 validators per block.
0x01 The pool will start to heavily favor Lido validators. If the Shanghai fork happened on January 29, 2023, then the expected distribution of validators in the first block would be:
16 validators initially set 0x01 credentials
9.95 Lido: A total of 13.19 ETH was withdrawn.
6.05 Non-Lido: A total of 6.89 ETH was withdrawn.
Authenticator without initially set 0x00 credentials.
By the 1,000th block (approximately 3 hours and 20 minutes), the expectation becomes:
14.83 validators initially set 0x01 credentials
9.22 Lido: 12.22 ETH withdrawn in total
5.61 non-Lido: total withdrawal of 6.39 ETH
1.17 validators who originally set 0x00 credentials: total withdrawal of 3.10 ETH
By the 10,000th block (approximately 1 day 9 hours), the expectation will be transformed into:
7.50 validators initially set 0x01 credentials
4.66 Lido: A total of 6.17 ETH was withdrawn
2.84 Non-Lido: 3.23 ETH withdrawn in total
8.50 validators who initially set up 0x00 credentials: total withdrawal of 22.57 ETH
Where the withdrawal rate (amount of withdrawals per block) peaks depends on the percentage of 0x00 validators switching their credentials immediately, but in the most extreme case where all 0x00 validators request changes, the peak will be reached after 70 hours, per zone The block extracted approximately 37.34 ETH - 3.01 ETH of which came from Lido validators.
Anyone suggesting an imminent peak is not delving into the data.
The animation below shows the evolution of daily fractional withdrawals after different shares of 0x00 validators chose to switch their credentials immediately. I think it's most likely somewhere between 25% and 50%, which would suggest that the peak rate would be reached early the next day for about two days.
In the most extreme case, the first day should see partial withdrawals of around 110,000 ETH (excluding Lido 0x01 validators). This figure stands in stark contrast to those naive models, which predicted that day one could see partial withdrawals of over 400,000 ETH.
Considering that non-Lido validators comprise the majority of centralized institutions and liquid collateralized derivatives, it is reasonable to expect these validators to only sell a portion of their rewards. So it seems unlikely that a self-selected partial withdrawal would lead to a catastrophic event in the market. The decision to automate partial withdrawals may reduce initial selling pressure by clogging up the queue with validators not intending to sell.
Before Shanghai's upgrade
Data is not a definitive end result, so a natural question to ask is: how should we expect configuration files to change before withdrawals are enabled? My intuition is as follows:
All types of validators will continue to receive rewards, and new validators will continue to appear.
New 0x00 validators will be very scarce compared to the existing 310,000+ validators, so their average balance will continue to climb to 2.5 to 2.6 ETH per validator.
The number of Lido 0x01 validators will continue to climb, while the average balance per validator will also increase to 1.3 to 1.4 ETH.
The number of non-Lido 0x01 validators will climb faster, putting downward pressure on the average balance, and I expect each validator to be in the range of 1.0 to 1.1 ETH.
The end result of these increases should be a 10% increase in the maximum withdrawal rate over the estimates in this article.
Adding validators (specifically 0x01 ) before enabling withdrawals will flatten the curve; extending the duration of sell pressure, but slightly reducing the peak sell pressure.
The process for full withdrawals remains the same. you can atherehere
The churn limit is tracked in real time, but the balanced churn limit quotient at the start of withdrawals is probably 8, which suggests that 57,600 ETH can be withdrawn with full withdrawals per day.
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