The Shanghai upgrade for Ethereum, set to launch in March, is causing excitement in the crypto community for its potential impact on liquid staking derivatives (LSDs). LSDs, such as stETH, have been popularized by projects like LidoFinance, and allow investors to earn yield from staking while maintaining the flexibility to deposit and withdraw at will.

With the Shanghai upgrade, stakers will now be able to queue their ETH for ‘unstaking’. This has sparked anticipation and speculation in the LSD market, as investors look to capitalize on the potential changes to staking yield.

There are two potential scenarios for what could happen with ETH staking yield after the Shanghai upgrade:

Staking yield goes up: Withdrawals enabled for stETH and unstaking ensues, stakers will likely get a bigger slice of the pie, resulting in a boost in network activity and ultimately reward emission.

Staking yield goes down: Uncertainties in staking are removed after Shanghai, leading to an uptick in LSDs and staking. In this scenario, stakers would likely get a minor cut of the emission pie, with network activity and reward emission decreasing.

It’s worth noting that ETH is currently “understaked” at only 14% compared to other chains. This is likely related to the fact that ETH can’t be unstaked yet. The Shanghai upgrade will change this and could spark a growth in various liquid staking solutions in the long term.

In conclusion, the Shanghai upgrade has the potential to bring significant changes to the staking yield of ETH and the popularity of liquid staking derivatives. While it’s hard to predict the exact outcome, it’s an exciting time for those interested in staking and yield farming in the DeFi space.

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