a month ago 4 min read

Coming Soon: Significant Shanghai Upgrade, What Ought to PoS Providers be Preparing?

Table of Contents

After the Beacon chain's debut and merger, Ethereum 2.0 will introduce the Shanghai upgrade in March (although the most recent news indicates that it will be delayed until early April). One of the main problems that needs to be fixed in this upgrade is the ETH 2.0 staking asset withdrawal issue. Ethereum staking goods have recently attracted a lot of market attention as the Shanghai upgrade draws closer.

Users Should Prepare their Withdrawals Before Staking

Users can withdraw the capital or income they had previously bet on the Beacon chain to the address they have specified after the Shanghai update takes effect, giving them free control over the relevant assets. All withdrawals and withdrawal rewards require setting a withdrawal address, which cannot be changed once it has been set. Withdrawal can be divided into these two categories. Each withdrawal requires the user to submit a withdrawal request to the validator and wait in line for approval. All monies can be returned after the user verifies the withdrawal; incentives can be withdrawn in the form of automated distribution, which is often credited to the account every few days. No withdrawal includes paying a petrol fee.

The user must set the withdrawal address in advance regardless of whether it is a full withdrawal or a withdrawal of rewards. Before the Shanghai upgrade, customers could only provide the withdrawal address when they first created a validator; they could not change it afterward. The withdrawal address of some validators is null since the Beacon chain does not impose restrictions that must be followed while creating the withdrawal address. Only 205,178 of the 517,052 validators in the network as of February 13 have configured withdrawal addresses, while 311,874 do not, making up 60.3% of the total.

Users can request to set a withdrawal address for a validator that does not yet have one after the Shanghai update, but they cannot change the withdrawal address. According to the theoretical value, all settings can be finished in 3 days (311874/115200, or roughly 2.7), since each block can specify 16 withdrawal addresses.

It is understood that 225 (the number of epochs each day) * 7 (the number of validators that can be withdrawn every epoch corresponding to the current number of validators) equals 1575, which is the maximum number of validators that can be withdrawn per day. In the worst-case scenario, every active validator leaves simultaneously. The theoretically longest period of time is 517052/1575, or roughly 328 days. In fact, it will take longer for all exits because the maximum number of validators that can be terminated in a single epoch depends on the total number of validators in use at the time.

The release of rewards and complete withdrawal are the final steps. The conditions for the user's withdrawal vary depending on the circumstances and the requirements:

A partial retreat comes first. The balance must be more than 32 ETH, the validator must establish a withdrawal address, and the status must be active (including unclaimed earnings).

The following is complete withdrawal. The status is withdrawable, and the validator must be configured with a withdrawal address (usually, it indicates that the validator exited successfully).

The withdrawal queue is open to eligible validators, and Ethereum will automatically transmit ETH to the withdrawal address without any further user action. The withdrawal cycle at this time is 517052/115200, or roughly 5 days.

"To Do List" for Providers of PoS Services

There are currently several different kinds of POS service providers, including SaaS (Staking as a Service) goods, classic decentralized LSD products, and CEX (centralized exchange) PoS products. The same, but generally, the following factors must be taken into account.

PoS service providers must first address the withdrawal demands of their clients and create related product features. The following is the general withdrawal procedure:

  1. Offer product entry and take consumer withdrawal requests
  2. Prepare for the withdrawal by setting the withdrawal address.
  3. Verify how many validator nodes must leave based on the user's amount of withdrawal requests.
  4. Send a request to leave the validator.
  5. Publish the withdrawal received at the withdrawal address.

Release Capital Risk is Second

Beacon chain staking started in December 2020, and it has been more than two years since the inaugural batch of money underwent staking. Users cannot retrieve their staked assets or change their validator addresses on Ethereum, which raises the danger of withdrawal certificate leakage over time. At the same time, because withdrawals are not possible, even if the current certificate has been leaked, users are unable to detect it. As a result, there is a significant risk exposure for the staking assets on the chain, and risk elimination must be done beforehand. Three steps must be taken by PoS service providers in their preparations:

  1. Audit of chain-wide staking assets

The service provider must verify the amount of staking assets on the chain to make sure it matches the amount of principal and interest staked by the user, to make sure the certificates they control match the assets on the chain, to make sure the withdrawal address has been set, and to make sure the private account associated with the withdrawal address is controlled by you. If you haven't already, you should arrange a secure withdrawal address as soon as feasible following the Shanghai changes.

2. Data security assessment

Verification of the private key of the withdrawal address as well as the withdrawal certificate's security.

3. Risk mitigation

The corresponding certificate may be at danger of leakage due to the lengthy asset stakes. Hence, it is advised that you rebuild the established validator piece by piece while the Shanghai update is in effect: exit the current validator, withdraw money, replace the certificate, and re-stake.

Make the Product More Appealing

In order to meet user withdrawal needs, product details must be optimized. This includes, but is not limited to, enhancing deposit logic, offering a smooth withdrawal experience, and reducing the queuing cycle. One way to do this is by offering an appointment withdrawal option.

The overall income will be greatly increased after the Shanghai update, and the APY is anticipated to rise by more than 10%. The staking rewards on the chain can also be withdrawn following the upgrade, and (automatic) reinvestment can be made after withdrawal.

Due to the impossibility to withdraw cash prior to the upgrade in Shanghai, the ETH equivalent tokens (such as stETH) of various LSD products have a slight slippage in relation to ETH. Following the upgrade in Shanghai, the related slippage will be soon smoothed out and the market will more generally acknowledge the worth of ETH-equivalent tokens. More ETH equivalent tokens can be added by service providers to the CeFi and DeFi solutions. Utilize scenarios to boost user income and improve liquidity.

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