• Ethereum’s Shanghai hard fork will enable investors to withdraw their staked ETH for the first time in two years.
• The withdrawal period is dynamic and determined by the number of validators that drop out at a given time.
• There is no threat of a market dump as most people are still unaware of the exit queue system.
The Ethereum blockchain successfully underwent its largest upgrade ever on September 15 of last year. The upgrade, called the „Merge“, opened the doors for investors to stake ETH and receive rewards. However, one of the primary conditions of staking was that a minimum of 32 ETH had to be staked, and the tokens could not be accessed until the next upgrade. This is all set to change with the upcoming Shanghai hard fork, which is tentatively scheduled for March of this year.
The upgrade is causing excitement among many investors, but also concern that when large investors are able to access their tokens for the first time in over two years, some of them may dump a large portion of their ETH on the market. However, this fear of a market dump is largely unfounded, as most people are still unaware of how the exit queue works.
To explain the mechanism, researcher Westie posted a thread via Twitter. He explains that the withdrawal period on Ethereum is dynamic and not static, unlike other PoS networks such as Cosmos, which has a fixed withdrawal period of 21 days. The period is determined by the number of validators that drop out at a given time, and the initial queue is determined by the number of all validators and the quotient of the churn limit, which is set at 2^16 (65,536). So, for example, if there are 500,000 validators, the churn limit would be set at 7.7 days.
If more validators drop out, the queue will shrink, and the withdrawal period will start sooner. On the other hand, if the number of validators increases, the queue will increase, and so will the withdrawal period. In addition, validators who exit the validator set must go through two stages: the exit queue and the withdrawal period.
Therefore, it is safe to say that there is no fear of a market dump as most people are still unaware of how the exit queue system works. With the Shanghai hard fork, investors will soon be able to withdraw their staked ETH for the first time in two years, and the dynamic exit queue system ensures that the withdrawal process will be orderly and without any major market disruption.