Bitget AMA Transcript: Ethereum Shanghai Upgrade Countdown, Ecology and Opportunities in the LSD Track

Author: Bitget

Last week, Bitget held an online topic interview on Twitter Space themed "Ethereum Shanghai Upgrade - The Ecology and Opportunities of the LSD Track." This session was hosted by Rolling Aunt Flo, and we were honored to invite five industry professionals: Mindao, Joy Lou, 0xTodd, 0xRJ.eth, and Yuuki to share their discussions on the topic.

This Space analyzed the Ethereum upgrade, focusing on LSD and the Ethereum ecosystem. The guests shared their personal views from different angles regarding the pre- and post-upgrade cycles, and there were exchanges and collisions of differing opinions during the discussion.

Q1: Since its launch in 2015, the Ethereum blockchain has undergone several major upgrades. What is the most unique aspect of this upgrade compared to previous ones? What direct benefits will the upgrade bring to the current state of the LSD track?

0xTodd: Each Ethereum upgrade is unique. Last year's upgrade transitioned the Ethereum network from PoW to PoS, completing the consensus switch. However, the last part of the PoS is still incomplete, as withdrawals from staking are not yet possible. The most important aspect of the Shanghai upgrade is that it allows for PoS withdrawals. The core of this upgrade is to fully complete PoS and lay a solid foundation for future Ethereum scalability.

Yuuki: The biggest benefit of this upgrade is that ETH can be withdrawn. Additionally, there are four protocols mainly targeting three points: the first is to reduce Ethereum gas fees, with upgrades like EIP-3860 and EIP-3855 aimed at lowering gas fees; the second is to increase transaction speed. Currently, everyone is observing or researching the ETH withdrawal upgrade, and subsequent Layer 2 developments should be postponed to later upgrades.

Mindao: The entire PoS system is incomplete without the withdrawal function. It's somewhat like a country's policy that can only increase interest rates but not decrease them, or can only increase taxes but not decrease them; this cannot form a closed loop. The biggest issue with ETH is its low staking rate, which is only 15%. The staking rate represents the overall security level of the network, so a low staking rate is certainly detrimental to network security.

The low staking rate of Ethereum is mainly due to the inability to withdraw, so LSD products are overly magnified by the market due to this withdrawal issue. Therefore, this upgrade is a milestone event for the integrity of the entire Ethereum economic security, making the Shanghai upgrade second only to the PoS transition of Ethereum.

Q2: Once Ethereum withdrawals are enabled, regarding the selling pressure: how much selling pressure will there be on the secondary market prices? How will the current staking price change compared to now? Will it increase or decrease?

RJ: Many people believe there may be significant selling pressure in the short term, but in reality, from a longer-term perspective, the overall selling pressure will not be particularly large. If the Shanghai upgrade is successful, it will be a very direct benefit to the entire Ethereum ecosystem, enhancing liquidity and boosting market confidence.

The reason for the low short-term selling pressure is that, among the four staking methods currently available for Ethereum, the real selling pressure risk lies in solo staking and individual nodes. These users are often early stakers who can bear such significant risks to choose to operate a solo node or need to lock up for a long time, which indicates their long-term optimism about Ethereum; they can be said to have faith.

So, in the current situation, they are certainly more confident in the success of the Ethereum upgrade. Many early stakers, including technical personnel and investors, share a consistent attitude: even if they withdraw, they will immediately restake or add in other ways to achieve higher returns.

Joylou: Regarding the selling pressure after withdrawals, I believe there will be some selling pressure, which will significantly impact secondary market prices.

Yuuki: From a qualitative perspective, it aligns with the widespread market view. First, if we qualitatively assess the Shanghai upgrade, it is undoubtedly a good thing for Ethereum from both mid-term and long-term perspectives.

The Shanghai upgrade and the increased confidence in ETH staking ratios will lead to a decrease in circulating ETH staking, which is beneficial for Ethereum's price. This is a mid- to long-term judgment. When we trade, we may pay attention to some short-term price fluctuations, which require more quantitative calculations.

The most important time point is about four or five days before the Shanghai upgrade, where we need to make a rough judgment on the selling pressure in the secondary market, as the subsequent selling pressure is relatively small, possibly only a few tens of thousands of ETH per day. The principal and profits of Ethereum after the upgrade may have a significant impact on the market and coin prices.

Mindao: From the perspective of validators and coin-based definitions of selling pressure, there are different insights. The assumption that this group of users will sell to exchange for fiat currency is questionable; those who are ETH-based should not consider converting profits into fiat. There is a very high likelihood that a large number of people will withdraw in the month following the upgrade. One reason for withdrawals is that the new format offers many conveniences, as many want to convert to the new address format. Another reason is to switch staking service providers, and these withdrawals are not driven by selling pressure.

0xTodd: To discuss whether these people will sell, we should first consider their approximate cost price. All data on the Ethereum chain is transparent. From 2020 to now, looking at the three highest average cost ranges for participating in Ethereum staking, the final price of Ethereum in the current illiquid situation is determined not by the average cost but by the lowest psychological bottom line. Secondly, due to the poor liquidity of exchange holders and the retail mindset, this group of users will also be potential targets for withdrawals.

Thirdly, the core idea of Ethereum is not about holding more; the interest scanning mechanism of Ethereum automatically withdraws to your withdrawal address, similar to an automatic payroll system that helps you withdraw excess interest into your account. Finally, regarding cashing out, converting Ethereum into stablecoins is the most direct way to cash out.

There is also an indirect way to cash out, such as buying some LSD. Although it does not directly cash out, it will achieve cash out in the next step. In summary, after the Shanghai upgrade, there will be a period where Ethereum itself will face significant pressure.

Q3: Could you share some advantages or opportunities of projects after the segmentation of this track, or are there any high-market-cap projects that could be shared regarding their advantages or technological advancements?

Yuuki: A detailed technical analysis was provided regarding the definition of selling pressure, ETH profit yield, and staking rates. On the question of new developments and opportunities in the LSD track, it starts with the fact that LSD products have a relatively complex product structure, which corresponds to a complex risk structure. Currently, if there is no innovation in the LSD ecosystem on the entire chain, it is difficult to achieve significant development; I introduced the characteristics of the three mainstream operational models in the LSD track.

Currently, Lido and Rocket Pool have made significant innovations and progress, and Frax's growth is also rapid. We can observe whether there will be higher development after the Shanghai upgrade.

RJ: When the entire staking pool expands, the direction in which new funds are likely to flow is a judgment perspective. In addition to projects directly related to LSD, the distributed validator technology (DVT) is a direction that will further enhance the infrastructure of Ethereum staking. Regarding DVT, it involves several aspects of how to fragment and ensure the stability of Ethereum's block validation while improving the degree of decentralization of the network, which I personally recognize.

Yuuki: I provided additional insights on SSV, noting that 67% of ETH needs to participate in network operations through DVT solutions. This data can help assess the value of the SSV protocol.

Q4: This year is a big year for Layer 2. After the Shanghai upgrade, what impact will there be between the ETH mainnet and Layer 2, or what developments can we expect?

Mindao: Layer 2 will play a significant role in extending and capturing the overall value of Ethereum. LSD assets themselves also expand Ethereum outward. After the upgrade, there will be two major changes in the LSD track: first, all LSD will gradually simplify the backend node validation; second, after the ETH upgrade, it will transition from equity assets to debt assets.

After the Shanghai upgrade, every node, regardless of size, can obtain liquidity in the market through zero-interest bond trading. This is why I am not particularly optimistic about a few leading projects; they do not have significant advantages in terms of liquidity. Therefore, Ethereum Layer 2 is more optimistic about large application layers and whether it can attract significant applications to build on it, which is the most important structure for ETH as a dominant public chain.

RJ: The reduction in gas fees is the most direct benefit of Layer 2 after the upgrade. The MEV track is also worth paying attention to; when there are significant price fluctuations, MEV can capture most of the profits. Lido's staking return rate has doubled, and as a leading project in the LSD track, Lido has a significant advantage in capturing MEV. Additionally, some DeFi-related content in the LSD track is also worth noting, such as decentralized exchanges and new lending protocols.

Joy Lou: The most noteworthy in the LSD space is still Lido, and Frax's business growth is very high, so it is a must-have for the long term. The DVT and FYI business links have not yet formed a closed loop, but if the links achieve closure, protocols like USH and LSDX, which aggregate yields, will also be in demand.

I would like to add three directional tracks: the first is yield aggregation, the second is lending + stablecoins, and the third is multi-chain with new innovative models. Based on the current market performance, we indeed believe that the LSD track and the price of Ethereum itself have some room for correction.

Q5: What will the exchange rate of Ethereum to BTC be in the next bull market? How much ETH can we expect in the future?

0xTodd: Overall, my view is somewhat pessimistic. There may be some corrections in April, but the trend of ETH before the Shanghai upgrade is still relatively healthy. Many indicators in the current market are similar to those in April-May 2019.

RJ, Mindao, Joy Lou: We hold a relatively optimistic view and are quite positive about the future direction of Ethereum.

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Note: The market has risks, and investment requires caution. This article does not constitute investment advice and is solely for the discussion and exchange of guest opinions.