Ethereum Deep Dive: Health check ahead of Shanghai upgrade in next month

Ethereum Deep Dive: Health check ahead of Shanghai upgrade in next month

By Dan Ashmore - min read

Key Takeaways

  • Ethereum’s Shanghai upgrade is slated for March, when all staked ETH will be released and become eligible to be sold
  • 16.1 million ETH is currently staked, equating to $26 billion, 14% of the entire supply
  • Capital has fled the Ethereum ecosystem over the last year, as higher interest rates from the Fed offer investors an alternate source of yield, while DeFi rates have collapsed
  • Total value locked (TVL) in Ethereum is down over 75% from its peak

Ethereum has a big event looming on the horizon. 

The much-awaited Shanghai upgrade is slated for March. This is a pivotal date because, after a long wait for investors, the ETH locked up in the ETH 2.0 staking contract will finally be released. 

And, there’s a lot of it. 16.4 million ETH, to be precise, which is equivalent to 15% of the entire supply. This locked ETH is worth close to $26 billion at time of writing. 

Ethereum volume and TVL is down

Unless you’ve been living under a rock, you will know that the last year in crypto has been, well, decidedly unfun. Volumes, interest and prices have cratered in the space, as a dire macro environment coupled with several crypto scandals have torpedoed the market. 

For Ethereum, when looking at transaction volume, the numbers have actually held up a little better than perhaps one could have expected, however still don’t make overly pretty reading. 

From a peak of 1.5 million transactions per day, the number has certainly come down, but is still lingering around the million mark, and up substantially from pre-COVID. Notably, several of Ethereum’s rivals have fallen significantly more, with its market share consequently growing; it may be a bigger piece of the pie, but the pie is significantly smaller. 

Capital has fled the Ethereum ecosystem

TVL is perhaps a better indicator. The metric sums up the capital flight from the space well, with Ethereum down to $28 billion, a 74% fall from its peak of $109 billion in November 2021. 


I included the ETH price on the above chart to demonstrate how correlated with the price this is. That makes intuitive sense, obviously, and ETH’s price has collapsed in live with the TVL. 

But when denominating the above chart in ETH rather than USD, it still shows a fall-off. 

This is indicative of a decline in the crypto space in general, but also the very real threat to DeFi that is rising interest rates in the economy. 

The Federal Reserve has engaged in an extremely aggressive hiking cycle, as it moves to aggressively rein in inflation. Not only has this nuked the price of risk assets, but it has offered a competitive source of yield for investors, who previously were forced to move out on the risk curve, many of whom looked towards sky-high DeFi rates. 

Not only has the Fed rate jumped from near zero up towards 4.5%, but DeFi yields have collapsed in the opposite direction, driven down towards 1%/2% from the dizzying levels seen during the pandemic, many of which were in the teens. This has caused extra capital to flee Ethereum.  


Eyes now turn to Shanghai upgrade

All eyes now will turn to the Shanghai upgrade, the next major date for Etheruem, following the Merge event which went live in September and converted the network to Proof-of-Stake, from its prior Proof-of-Work consensus. 

While liquid staking options have allowed many investors to trade ETH regardless, the release of so much ETH is nonetheless a big deal. I’ll follow up with another piece on what this could mean for the price of ETH, but regarding the fundamentals and continued development of the network, it is certainly a step in the right direction. 

The Merge dragged on but came and went smoothly in September. The Shanghai upgrade is the next stage of that. 

Crypto has been hurt immensely in the last year, and Ethereum has felt the brunt of that. Freefalling volumes, capital and prices are indicative of that. And while macro continues to drive the bus for crypto, that will (hopefully) turn around eventually. Then – and only then –  these things will help set Ethereum up to resume its growth. But it’s a long road back.