FAQ about the Shapella fork enabling withdrawals for Ethereum stakers

By: Friedrich Zwanzger

Explore FAQs about the Shapella Fork: Enabling Withdrawals for Ethereum Stakers - Blockdaemon Blog

The Shapella fork is coming to Ethereum Mainnet in March 2023!

We want to provide anybody staking $ETH all the details of what the highly anticipated withdrawal feature will look like.

There are no actions required by Blockdaemon customers before the Shapella hard fork on Ethereum Mainnet to enable the receipt of their accumulated staking rewards!

The following FAQs are for informational purposes only and do not require any extra steps from the customer.

• What is the name of this hard fork that enables withdrawals for Ethereum stakers?
• When will it actually happen?
• Do withdrawals mean I can get my accumulated protocol rewards or that I can exit my Ethereum validator?
• I read that right after Shapella, 1 million $ETH automatically becomes liquid?
• Is the percentage of staked $ETH going up or down once withdrawals are enabled?
• How will I receive my accumulated staking rewards?
• What about auto-compounding of rewards?
• What is the unbonding time for my staked $ETH?
• Is there going to be an exit/activation queue following the Shapella fork?
• How can the withdrawal data be monitored on-chain?
• Do I need to update my withdrawal credentials before being able to receive my accumulated rewards or exit my validator?
• Will demand for liquid staking go down once withdrawals are enabled?
• Who can I contact if I have any questions?
• How does Blockdaemon enable withdrawals?
• How can I test the new withdrawal functionalities on testnet?
• What changes with regards to pre-signed exit messages?
• What is the best practice, if the amount of $ETH to stake fluctuates a lot?
• How can I track the length of validator activation & exit queues?

What is the name of this hard fork that enables withdrawals for Ethereum stakers?

• Naming: usually referred to as the “Shapella” hard fork/upgrade (full EIP-list of changes)
• Shanghai is specifically the name of the Execution Layer update (former Devcon cities)
• Capella is specifically the name of the Consensus Layer update (star names alphabetically)
• Sometimes called “Shapella” for a blended name, but it all means the same fork
• Lively discussion on future naming conventions: RFC: Post-Merge Network Upgrade Naming Schemes

When will it actually happen?

• April 12, 2023 at 10:27:35 PM UTC (Epoch: 6209536) (reasoning why exactly then rather than “round time/epoch”)
• Thanks to PoS fixed block times, it will be at a specific time (unlike the uncertainty around the Merge date).

Does withdrawals mean I can get my accumulated protocol rewards or that I can exit my Ethereum validator?

Both! The naming of this significant change (specified in EIP-4895) is a bit misleading in terms of what activity is meant and if action is required from the user:

• Partial withdrawals = accumulated protocol rewards are pushed to withdrawal address regularly, with no action required by the user
• Full withdrawals = after exiting a validator completely, the collateral is pushed to withdrawal address, with the user initiating the voluntary exit or the protocol excluding the validator due to slashing or continued penalties reducing the effective balance to < 16 ETH

I read that right after Shapella, 1 million $ETH automatically becomes liquid?

The ~1 million $ETH is correct, as is the fact that a reward sweep through the full set of ~500k validators takes about 4-5 days.

But the fact a lot of people overlook is the following: of the current ~500k validators, about ~300k are still having the old withdrawal credentials (0x00 BLS), and these get skipped in the sweep. Therefore the availability of additional $ETH liquidity depends on the speed that validators update their credentials (source) to 0x01 normal addresses.

The maximum technical throughput of this credential update operation is similar to the withdrawal sweep, so it would take about 3 days for ~300k validators, but likely much longer as the owner’s of the validators will not all be ready/aware/able to update the credentials right around the Shapella fork.

Is the percentage of staked $ETH going up or down once withdrawals are enabled?

• We don’t want to speculate and it is anyone’s guess whether the % of staked $Eth will go up or down once Shapella activates.
• This report gives a good summary on how the accumulated protocol rewards will be distributed (= partial withdrawals) and how the exit of validators (= full withdrawals) will work and suggests: “There is likely to be a surge in the number of pending validator entries, exits, withdrawals, and withdrawal credential changes shortly following Shapella as users and business re-evaluate their staking operations and recoup gains.”

Is there going to be an exit/activation queue following the Shapella fork?

It is important to note that nobody really knows.

The overall sentiment seems to be that over the course of a few months, there is actually going to be an inflow of Eth, rising the percentage of stake in the network above the current ~14%. But in the short term after the fork, there is a lot of reshuffling to be expected:

• Institutional stakers that were previously prevented from staking their Eth due to the lock-in might want to onboard asap, and we actually have clients prepared to do that.
• Others might want to switch their staking setup to different providers, harvesting tax losses or utilizing liquid staking protocols, leading to both exits and new activations.
• Some stakers may want to quit staking due to liquidity needs etc. The most impactful might be large crypto institutions that went bankrupt in 2022 and might be forced to liquidate all their crypto holdings, like FTX/Almeda, Voyager, BlockFi, Celsius, etc.

All in all, the last point makes it somewhat likely that an exit queue might be forming for some time after the Shapella fork. The good news is that all validators will continue to receive rewards during their time in the exit queue.

How will I receive my accumulated staking rewards?

Executive summary:

Due to some variable components, there is no exact time interval to receive one’s accumulated protocol rewards on Ethereum. But it is likely safe to say that these rewards should be arriving within a few days after the Shapella fork at the withdrawal address on the execution layer.

Details:

• Each block can contain a maximum of 16 operations per withdrawal sweep, be it the distribution of accumulated protocol rewards (partial withdrawals) or the unbonding of the full 32 Eth staked collateral (full withdrawal). The validator responsible to produce the blocks continues the scan of validator index numbers where the previous one left off, and fills these spaces until either the maximum of 16 withdrawals per block or the maximum scan range (16,384 validator indexes) has been reached.
• It is expected that after the initial rewards distribution, protocol rewards should arrive at least 6 times per month on the withdrawal address balance, depending on the limited withdrawal operation capacity and the number of updated 0x01 credentials before distribution is automatically triggered.

What about auto-compounding of rewards?

With the accumulated protocol rewards becoming liquid on Ethereum, stakers are obviously free to use them. To most, it will likely make sense to double down on their staking conviction by restaking their rewards.

Unfortunately, the Ethereum protocol does not offer auto-compounding natively, as some other PoS protocols do.

What is the unbonding time for my staked $ETH?

Executive summary:

Due to some variable components, there is no exact unbonding/exit time on Ethereum. But it is likely safe to say that generally a voluntary exit of Ethereum validators should be finished within about a week.

How can the withdrawal data be monitored on-chain?

All withdrawals are not transactions, so there will be no gas costs associated with withdrawals. To track regular protocols rewards and potentially any exited collateral, transaction-based tooling will not work.

Withdrawals will be identifiable as a new type of object in an Ethereum block with its own dedicated data field.

Do I need to update my withdrawal credentials before being able to receive my accumulated rewards or exit my validator?

In order to receive any protocol rewards or the collateral, the withdrawal address needs to be set in the 0x01 normal execution layer address format. Blockdaemon customers do not need to worry about this step, as they were set up in the new way and are good to go!

Will demand for liquid staking go down once withdrawals are enabled?

Interestingly, liquid staking solutions might actually gain market share post-Shapella.

Who can I contact if I have any questions?

Speak to your Technical Account Manager (TAM) for more details or any other question.

How does Blockdaemon enable withdrawals?

Partial withdrawals, i.e. pushing the accumulated protocol rewards to the configured withdrawal address, are happening automatically by the protocol, see details above.

For full withdrawals, i.e. completely exiting a validator to reclaim the 32 Eth collateral, there are various options:

How can I test the new withdrawal functionalities on testnet?

We support the full validator lifecycle on Ethereum with our staking tooling, also on Goerli testnet:

What changes with regards to pre-signed exit messages?

Some customers require a way to exit their validators at any time without any interaction with Blockdaemon for compliance reasons. We now provide a dedicated API endpoint to enable these business continuity use cases via pre-signed exit messages.

What is the best practice, if the amount of $ETH to stake fluctuates a lot?

Blockdaemon offers two solutions in this regard:

• You can use a dynamic validator plan via our staking integration API: This setup allows you to quickly scale up new validators while keeping node costs at bay.
• You can leverage our institutional liquid staking solution Portara: This will optimize your capital efficiency and unbonding time.