Since the start of Ethereum 2.0 phase zero, thousands of investors have deposited their ether into the Ethereum Deposit Contract themselves via Coinbase, Binance and Co., or via decentralized alternatives such as the liquid staking providers Lido (LDO) or Rocket Pool (RPL).
An impressive 13.326 million ethers, which are worth around 24.56 billion US dollars, are now being staked. This makes Ethereum the largest Proof of Stake (PoS) blockchain in the entire crypto space.
Investors cannot currently transfer this staked ETH. This means that every single Ether token staked contributes to reducing the total supply of Ethereum. Staking thus directly contributes to the ETH price rising if the demand for ether remains the same or increases.
But what happens to the 13 million ether tokens after the merge?
Staked ETH cannot be immediately monetized
Ethereum stakers cannot sell their ethers immediately after the merge. Stakers can only access their ETH 6-12 weeks after the upgrade. The Ethereum development team made this provision on purpose to prevent a sudden sell-off from happening.
As a result, there should not be a massive sale of ether after the merge. But what happens once the withdrawals from the staking contract are unlocked?
There may be a sell-off, but the Ethereum developer community has taken precautions to prevent all ETH from being sold at once.
Instead, there will be a queue that limits how quickly investors can withdraw their ETH from the deposit contract. This mechanism is intended to ensure that the Ethereum 2.0 blockchain remains stable and that the security of the network is not affected by high volatility.
How dangerous could a sell-off be?
The number of ether withdrawable is capped at X/ETH per day, where X equals the total number of validator nodes divided by 65,536. The result of this formula is rounded down to the nearest whole number.
The number 65,536 is derived from 2^16. It’s called the “churn limit quotient” and you can read more about it here.
There are currently 416,237 Ethereum validators on Ethereum 2.0. To find the number of validators per epoch (unit of time on the Ethereum PoS blockchain), this number needs to be divided by 65,536 and rounded down to the nearest whole number: 416,236/65,536 ≈ 6 validators per epoch.
So the number of Ethereum validators is 6 per epoch. An epoch on the Ethereum blockchain is 6.4 minutes, giving 225 epochs in 24 hours.
According to this, 1,350 validators, each holding 32 ETH, can theoretically withdraw a total of 43,200 ether from the staking contract per day.
At the current Ether rate, this would mean that around $80 million can be withdrawn from the staking contract per day. With a daily trading volume averaging over 15 billion US dollars a day, the influence of this potentially new ether token on the market is negligible for the price of the second largest cryptocurrency.
You can find out more about the further consequences of the biggest upgrade in the history of Ethereum in the current issue of the BTC-ECHO magazine.
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