In March 2023, the Ethereum network will complete its transition to proof-of-stake (PoS) with the Shanghai hard fork.
The Merge, which started on September 15, 2022, began this move. Once the upgrade is in place, Ether that was previously locked will gradually become available, marking the first time since December 2020.
On-chain Etherscan data shows $28 billion worth of Ether is locked in PoS staking protocol, resulting in 16.6 million ETH locked. Since the Merge, over 24,800 ETH has been burned to reduce the token’s supply deflationary on a yearly basis by 0.05%, achieving the goal of Ethereum’s move from PoW to PoS.
With the Shanghai upgrade, a little over 10% of the total Ether supply, which is currently at 120 million, will be unlocked and yield rewards will begin. Before this update, investors had to lock their ETH and run a reliable node to receive yield rewards. However, the minimum staking requirement of 32 locked ETH is illiquid, limiting traders’ utility options for these coins.
With Liquid staking derivatives (LSD) protocols, users can receive derivative tokens representing a stake in the pool, while still being able to sell them on the secondary market. The protocols lock the native Ether and charge a fee to users.
The popularity of liquid staking derivatives surged after Lido and other protocols experienced a rush of cash flow following the Merge. Liquid staking has now overtaken illiquid staking since the introduction of Ether staking. As of February 13th, more than half of staked Ether, 57%, is now liquid while 43% is illiquid.