Why Didn’t ETH Dump After Shanghai? Interview With Nansen

The Shapella upgrade last month enabled validators to unstake millions of ETH from the Ethereum 2.0 contract, allowing the funds to potentially be sold on the open market. Despite this, the second-largest cryptocurrency actually increased in value after the upgrade. How come?

At Consensus 2023, CryptoPotato sat down with representatives from Nansen, a blockchain analytics company, to discuss how things have looked on-chain since the final phase of the Merge.

Shanghai Defies Expectations

Going into the upgrade, Nansen Content Lead Andrew Thurman said he’d predicted that net outflows from Ethereum’s staking contract would be a weeks-long phenomenon. To his surprise, his firm found that withdrawals appeared to have flattened out within a matter of days.

“We knew that entities with exposure to US regulatory, for example, Kraken and Coinbase, where there was clear indication that staking as a business was going to undergo some regulatory challenges – we know those people want to unwind their positions, so that’s a big overhang,” said Jason Xu – Senior Product Manager at Nansen – to CryptoPotato in an interview.

This proved true to a degree. Immediately following Shapella, Kraken alone accounted for 67% of all principal ETH withdrawals from the staking contract. The firm was fined $30 million by the Securities and Exchange Commission (SEC) and forced to shut down its staking service prior to the upgrade.

Coinbase – which has been issued a Wells Notice by the SEC but promised to defend itself in court – was responsible for another 11%, but the withdrawal overhang from both firms has since “flattened out.” Kraken’s and Coinbase’s shares of total ETH principal withdrawals have since changed to 34.9% and 14.1%, respectively, per Nansen’s Shanghai dashboard.

The other hypothesis, according to Xu, was that there likely wouldn’t be any heightened interest from new retail participants to start staking since they’ve already had access to liquid staking derivatives like Lido for a long time.

Such services – which provide stakers with a 1:1 convertible liquid token for their locked, staked ETH – are expected to succeed well into the future due to the difficulty for users to stake on their own. “ETH has consistently delivered on their roadmap, the technical roadmap. So I think people are confident in ETH,” he said.

As of May 8, there is over 19.3 million ETH locked away for staking – more than before Shapella had activated. Xu added that many “smart money” investors in crypto, by Nansen’s standards, are mainly holding “different variants of staked ETH.”

FUD vs. Facts: Binance Withdrawals

Much was said regarding a supposed influx of withdrawal requests on Binance back in March, shortly after the global crypto exchange was sued by the Commodities and Futures Trading Commission (CFTC).

However, when asked if these reports were true, Nansen Ecosystem Growth Manager Aurélie Boiteux said these claims “might be exaggerating a little bit.” In reality, for both Binance in that particular case as well many other large exchange withdrawals, it was really just Binance “sending to another Binance wallet.”

“We saw a lot of drama on Twitter,” she said, “ and people tend to react really too quickly, maybe just for fear, for example, by fear and anything. But so far on-chain, I don’t recall a really big issue regarding regulatory in that aspect.”

While volume can vary on the exchange from day to day, Boiteux said that volume at Binance didn’t seem to experience any statistically significant change on-chain after the CFTC lawsuit, unlike the FTX debacle in November.

Boiteux refused to provide any specific price predictions for the future. “We do not predict the future, that we try to understand by what’s happened before, what could be a potential price, what could be a potential bear market or bull market, et cetera,” she said.

Xu, however, remained bullish. “My opinion’s to the moon,” he said. “ That’s the politically correct answer I’m going to give.”

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