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Ethereum’s Shanghai upgrade could supercharge liquid staking derivatives — Here’s how

Traders are contemplating what will happen to ETH price and staked Ether derivatives after the next network upgrade opens withdrawals for stakers.



Traders are contemplating what will happen to ETH price and staked Ether derivatives after the next network upgrade opens withdrawals for stakers.

The crypto market witnessed the DeFi summer of 2020, where decentralized finance applications like Compound and Uniswap turned Ether (ETH) and Bitcoin (BTC) into yield-bearing assets via yield farming and liquidity mining rewards. The price of Ether nearly doubled to $490 as the total liquidity across DeFi protocols quickly surged to $10 billion.

Toward the end of 2020 and early 2021, the COVID-19-induced quantitative easing across global markets was in full effect, causing a mega-bull run that lasted almost a year. During this time, Ether’s price increased nearly ten times to a peak above $4,800.

After the euphoric bullish phase ended, a painful cool-down journey was exacerbated by the UST-LUNA crash which began in early 2022. This took Ether’s price down to $800. A ray of hope eventually arrived in the third quarter as the market experienced a positive rally led by the Ethereum Merge narrative.

The shift to an environmentally-friendly proof-of-stake (PoS) consensus mechanism was a big step forward. The event also reduced Ether inflation post-merge. During a lead-up to the Merge on Sept. 15, 2021, ETH peaked at over $2,000. However, the bullish momentum faded quickly, turning the Merge into a buy-the-rumor and sell-the-news event.

A similar bullish opportunity could be brewing in Ether as the upcoming Shanghai upgrade scheduled for March 2023 grabs the market spotlight. The upgrade will finally enable withdrawals from Ethereum staking contracts, which are locked presently. The upgrade will significantly reduce the risk of staking ETH.

It will provide an opportunity for liquidity staking protocols to grow. The governance tokens of some of these protocols have jumped since the start of the new year as hype builds around.

There’s a possibility that the upgrade can push these tokens toward last year’s Merge highs. Moreover, Ethereum’s staking space is still in its early stages, providing a market opportunity for the growth of these protocols.

The percentage of staked Ether is low

Currently, 13.18% of Ether’s total supply is staked on the Beacon Chain, which is low compared to other proof-of-stake (PoS) chains like Cosmos Hub (ATOM) with a staking ratio of 62.5%, Cardano (ADA) with 71.8%, and Solana (SOL) at 71.4%. The reason for Ethereum’s low staking ratio is that the staked Ether is locked in its current state, but this will change in March.

Ethereum has the lowest staking ratio compared to other L1 blockchains. Source: Staking Rewards

The upcoming Shanghai upgrade will include a code known as EIP 4895 that will allow Beacon Chain staked Ether withdrawals, enabling a 1:1 exchange of staked Ether for Ether. Ethereum’s staking ratio should reach parity with other leading PoS networks after this update. A significant portion of which will likely move to liquid staking protocols.

De-risking of liquid staking derivatives

Liquid staking protocols like Lido and Rocket Pool let Ether holders stake without running a validator node. Since Ether is pooled, a single user doesn’t have a minimum threshold of 32 ETH (worth around $40,000) for staking. People can stake fractions of Ether, reducing the entry barrier for staking.

The protocols also enable liquidity provision for staked assets, which would otherwise be locked in the staking contracts. The DeFi contracts give a derivative token (for instance, Lido’s stETH) in exchange for staked Ether on the proof-of-stake (PoS) network. A user can trade with stETH while earning yields from the staking contract.

As Ethereum’s staking ratio increases after March’s update, the use of liquidity staking protocols will likely increase with it. Currently, the liquid staking protocols account for 32.65% of the total staked Ether. Due to the benefits mentioned above, their market share should remain near or above current levels after the Shanghai upgrade.

The governance tokens of liquid staking protocols could also benefit from their increased locked value, similar to DeFi tokens, which benefited from a rise in total locked value (TVL) in the latest bull run.

How are LSD governance tokens performing ahead of Shanghai?

Lido DAO (LDO)

Lido DAO is the leader of the liquid staking space with higher annual yield and market share than other protocols. Lido commands 88.55% of the total staked Ether in these protocols.

Let's take the amount of staked Ether as a proxy for evaluating the protocol. We again find that Lido has the most competitive market capitalization to staked Ether ratio.

Source: Coingecko, Dune Analytics

The weak point of the project’s token economics is that LDO is a governance token. It doesn’t entitle holders to a share of the generated yield or fees. Moreover, the token has additional inflation from investor token unlocking until May this year.

LDO 4-hour price chart. Source: TradingView

Technically, the LDO token broke above the short-term resistance of around $1.17 with significant buying volume. Bulls will likely target $1.80, capitalizing on the hype around the Shanghai upgrade.

The token is heavily shorted in the futures market after the recent 26% rise in its price since Jan. 1. The funding rate for LDO perpetual swap turned negative with a large magnitude, providing an opportunity for a further uptrend in a short-squeeze. The current support levels for LDO are $1.17 and $1.

Rocket Pool (RPL)

Rocket Pool is similar to Lido, albeit smaller in size. The market capitalization to the staked Ether ratio of the platform is five times larger than Lido, which likely makes it overpriced.

Nevertheless, the RPL token has additional utility besides governance as an insurance token for users. Node operators stake RPL as insurance, where users receive the staked RPL in case of losses due to the operator's fault.

The Ethereum Merge high of RPL in September 2021 was $34.30. Since the start of 2023, its price has increased by 10%, last trading at $22.40. If buyers are successful in building support above the $20 level, there's a possibility that RPL can reach last year’s high of $30, which was attained around the Ethereum Merge.

Ankr (ANKR)

Ankr is a blockchain infrastructure provider which offers API endpoints and runs RPC nodes besides staking solutions. Similar to LDO, ANKR is only used for governance purposes.

The token’s price has stayed relatively flat over the last few days. The market capitalization to the staked Ether ratio of Ankr is on the higher side at par with Rocket Pool, which is a negative sign.

Still, if the hype around Shanghai upgrade increases, ANKR can reach August 2021 highs of $0.05. The recent breakdown level of $0.03 will act as resistance for buyers. Currently, the token is trading around $0.015.

Stakewise (SWISE)

Stakewise offers the highest staking yield of 4.43%. Its governance token is comparatively less inflated than RPL and ANKR in the market capitalization to staked Ether ratio, making it cheaper than RPL and ANKR.

However, the token distribution is adversely skewed towards private investors and the founding team, which have 46.9% of SWISE’s total supply. According to data from Nansen, wallets identified as “smart money” have been slowly accumulating SWISE since April 2021.

Smart wallet holdings of SWISE tokens. Source: Nansen

The Ethereum Merge high for SWISE was $0.23, which will be the likely target for buyers. The support lies near 2022-lows around $0.07.

Shared Stake is flagged red because the protocol was suspected of an insider exploit, which caused a 95% decline in the token’s price in June 2021. The high staking return of the Shared Stake compared to others is also an eyebrow-raising detail to take note of. On the other hand, Cream Finance has discontinued its Ether staking service.

The upcoming Ethereum Shanghai upgrade provides an opportunity for the liquid staking space to grow. Lido DAO is the clear leader in this space with an optimum market price. The de-risking of ETH staking and hype around the event could translate to a series of rallies that could push the price of LDO and other liquid staking protocols back to their Merge highs from last year.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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Lower mortgage rates fueling existing home sales

To understand why we had such a beat in sales, you only need to go back to Nov. 9, when mortgage rates started to fall from 7.37% to 5.99%.



Existing home sales had a huge beat of estimates on Tuesday. This wasn’t shocking for people who follow how I track housing data. To understand why we had such a beat in sales, you only need to go back to Nov. 9, when mortgage rates started to fall from 7.37% to 5.99%.

During November, December and January, purchase application data trended positive, meaning we had many weeks of better-looking data. The weekly growth in purchase application data during those months stabilized housing sales to a historically low level.

For many years I have talked about how rare it is that existing home sales trend below 4 million. That is why the historic collapse in demand in 2022 was one for the record books. We understood why sales collapsed during COVID-19. However, that was primarily due to behavior changes, which meant sales were poised to return higher once behavior returned to normal.

In 2022, it was all about affordability as mortgage rates had a historical rise. Many people just didn’t want to sell their homes and move with a much higher total cost for housing, while first-time homebuyers had to deal with affordability issues.

Even though mortgage rates were falling in November and December, positive purchase application data takes 30-90 days to hit the sales data. So, as sales collapsed from 6.5 million to 4 million in the monthly sales data, it set a low bar for sales to grow. This is something I talked about yesterday on CNBC, to take this home sale in context to what happened before it. 

Because housing data and all economics are so violent lately, we created the weekly Housing Market Tracker, which is designed to look forward, not backward.

From NAR: Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – vaulted 14.5% from January to a seasonally adjusted annual rate of 4.58 million in February. Year-over-year, sales fell 22.6% (down from 5.92 million in February 2022).

As we can see in the chart above, the bounce is very noticeable, but this is different than the COVID-19 lows and massive rebound in sales. Mortgage rates spiked from 5.99% to 7.10% this year, and that produced one month of negative forward-looking purchase application data, which takes about 30-90 days to hit the sales data.

So this report is too old and slow, but if you follow the tracker, you’re not slow. This is the wild housing action I have talked about for some time and why the Housing Market Tracker becomes helpful in understanding this data.

The last two weeks have had positive purchase application data as mortgage rates fell from 7.10% down to 6.55%; tomorrow, we will see if we can make a third positive week. One thing to remember about purchase application data since Nov. 9, 2022 is that it’s had a lot more positive data than harmful data. 

However, the one-month decline in purchase application data did bring us back to levels last seen in 1995 recently. So, the bar is so low we can trip over.

One of the reasons I took off the savagely unhealthy housing market label was that the days on the market are now above 30 days. I am not endorsing, nor will I ever, a housing market that has days on the market at teenager levels. A teenager level means one of two bad things are happening:

1. We have a massive credit boom in housing which will blow up in time because demand is booming, similar to the run-up in the housing bubble years.

2. We simply don’t have enough products for homebuyers, creating forced bidding in a low-inventory environment. 

Guess which one we had post 2020? Look at the purchase application data above — we never had a credit boom. Look at the Inventory data below. Even with the collapse in home sales and the first real rebound, total active listings are still below 1 million.

From NAR: Total housing inventory registered at the end of February was 980,000 units, identical to January & up 15.3% from one year ago (850,000). Unsold inventory sits at a 2.6-month supply at the current sales pace, down 10.3% from January but up from 1.7 months in February ’22. #NAREHS

However, with that said, the one data line that I love, love, love, the days on the market, is over 30 days again, and no longer a teenager like last year, when the housing market was savagely unhealthy.

From NAR: First-time buyers were responsible for 27% of sales in January; Individual investors purchased 18% of homes; All-cash sales accounted for 28% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 34 days.

Today’s existing home sales report was good: we saw a bounce in sales, as to be expected, and the days on the market are still over 30 days. When the Federal Reserve talks about a housing reset, they’re saying they did not like the bidding wars they saw last year, so the fact that price growth looks nothing like it was a year ago is a good thing.

Also, the days on market are on a level they might feel more comfortable in. And, in this report, we saw no signs of forced selling. I’ve always believed we would never see the forced selling we saw from 2005-2008, which was the worst part of the housing bubble crash years. The Federal Reserve also believes this to be the case because of the better credit standards we have in place since 2010. 

Case in point, the MBA‘s recent forbearance data shows that instead of forbearance skyrocketing higher, it’s collapsed. Remember, if you see a forbearance crash bro, hug them, they need it.

Today’s existing home sales report is backward looking as purchase application data did take a hit this year when mortgage rates spiked up to 7.10%. We all can agree now that even with a massive collapse in sales, the inventory data didn’t explode higher like many have predicted for over a decade now.

I have stressed that to understand the housing market, you need to understand how credit channels work post-2010. The 2005 bankruptcy reform laws and 2010 QM laws changed the landscape for housing economics in a way that even today I don’t believe people understand.

However, the housing market took its biggest shot ever in terms of affordability in 2022 and so far in 2023, and the American homeowner didn’t panic once. Even though this data is old, it shows the solid footing homeowners in America have, and how badly wrong the extremely bearish people in this country were about the state of the financial condition of the American homeowner.

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SVB contagion: Australia purportedly asks banks to report on crypto

Australia’s prudential regulator has purportedly told banks to improve reporting on crypto assets and provide daily updates.



Australia’s prudential regulator has purportedly told banks to improve reporting on crypto assets and provide daily updates.

Australia’s prudential regulator has purportedly asked local banks to report on cryptocurrency transactions amid the ongoing contagion of Silicon Valley Bank’s (SVB) collapse.

The Australian Prudential Regulation Authority (APRA) has started requesting banks to declare their exposures to startups and crypto-related companies, the Australian Financial Review reported on March 21.

The regulator has ordered banks to improve their reporting on crypto assets and provide daily updates to the APRA, the Financial Review notes, citing three people familiar with the matter. The agency is aiming to obtain more information and insight into banking exposures into crypto as well as associated risks, the sources said.

The new measures are apparently part of the APRA’s increased supervision of the banking sector in the aftermath of recent massive collapses in the global banking system. On March 19, UBS Group agreed to buy its ailing competitor Credit Suisse for $3.2 billion after the latter collapsed over the weekend. The takeover became one of the latest failures in the banking industry following the collapses of SVB and Silvergate.

Barrenjoey analyst Jonathan Mott reportedly told clients in a note that the situation “remains stable” for Australian banks but warned confidence could be quickly disrupted, putting pressure on bank margins.

Related: Silvergate, SBV collapse ‘definitely good’ for Bitcoin, Trezor exec says

“Our channel checks indicate deposits are not being withdrawn from smaller institutions in any size, and capital and liquidity buffers are strong,” Mott said, adding:

“But this is a crisis of confidence and credit spreads and cost of capital will continue to rise. At a minimum, this will add to the margin pressure the banks are facing, while credit quality will continue to deteriorate.”

The news comes soon after the Australian Banking Association launched a cost of living inquiry to study the impact of the COVID-19 pandemic and geopolitical tensions on Australians. The inquiry followed an analysis of the rising inflation suggesting that more than 186 banks in the United States are at risk of a similar shutdown if depositors decide to withdraw all funds.

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Delta Move Is Bad News For Southwest, United Airlines Passengers

Passengers won’t be happy about this, but there’s nothing they can do about it.



Passengers won't be happy about this, but there's nothing they can do about it.

Airfare prices move up and down based on two major things -- passenger demand and the cost of actually flying the plane. In recent months, with covid rules and mask mandates a thing of the past, demand has been very heavy.

Domestic air travel traffic for 2022 rose 10.9% compared to the prior year. The nation's air traffic in 2022 was at 79.6% of the full-year 2019 level. December 2022 domestic traffic was up 2.6% over the year-earlier period and was at 79.9% of December 2019 traffic, according to The International Air Transport Association (IATA).

“The industry left 2022 in far stronger shape than it entered, as most governments lifted COVID-19 travel restrictions during the year and people took advantage of the restoration of their freedom to travel. This momentum is expected to continue in the New Year,” said IATA Director General Willie Walsh.

And, while that's not a full recovery to 2019 levels, overall capacity has also not recovered. Total airline seats available actually sits "around 18% below the 2019 level," according to a report from industry analyst OAG.

So, basically, the drop in passengers equals the drop in capacity meaning that planes are flying full. That's one half of the equation that keeps airfare prices high and the second one looks bad for anyone planning to fly in the coming years.

Image source: Getty Images.

Airlines Face One Key Rising Cost

While airlines face some variable costs like fuel, they also must account for fixed costs when setting airfares. Personnel are a major piece of that and the pandemic has accelerated a pilot shortage. That has given the unions that represent pilots the upper hand when it comes to making deals with the airlines.

The first domino in that process fell when Delta Airlines (DAL) - Get Free Report pilots agreed to a contract in early March that gave them an immediate 18% increase with a total of a 34% raise over the four-year term of the deal.

"The Delta contract is now the industry standard, and we expect United to also offer their pilots a similar contract," investment analyst Helane Becker of Cowen wrote in a March 10 commentary, Travel Weekly reported.

US airfare prices have been climbing. They were 8.3% above pre-pandemic levels in February, according to Consumer Price Index, but they're actually below historical highs.

Southwest and United Airlines Pilots Are Next

Airlines have very little negotiating power when it comes to pilots. You can't fly a plane without pilots and the overall shortage of qualified people to fill those roles means that, within reason, United (UAL) - Get Free Report and Southwest Airlines  (LUV) - Get Free Report, both of which are negotiating new deals with their pilot unions, more or less have to equal (or improve on) the Delta deal.

The actual specifics don't matter much to consumers, but the takeaway is that the cost of hiring pilots is about to go up in a very meaningful way at both United and Southwest. That will create a situation where all major U.S. airlines have a higher cost basis going forward.

Lower fuel prices could offset that somewhat, but raises are not going to be unique to pilots. Southwest also has to make a deal with its flight attendants and, although they don't have the same leverage as the pilots, they have taken a hard line.   

The union, which represents Southwest’s 18,000 flight attendants, has been working without a contract for four years. It shared a statement on its Facebook page detailing its position Feb. 20.

"TWU Local 556 believes strongly in making this airline successful and is working to ensure this company we love isn’t run into the ground by leadership more concerned about shareholders than about workers and customers. Management’s methodology of choosing profits at the expense of the operation and its workforce has to change, because the flying public is also tired of the empty apologies that flight attendants have endured for years."

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