SafeStake

<h2 id="header-0">Everything you need to know about the next Ethereum upgrade.</h2>After the successful completion of ‘The Merge’ that transitioned Ethereum from Proof-of-Work to Proof-of-Stake last September, many concerns arose regarding the next scheduled update on the extensive blockchain roadmap: the Shanghai Update. The updated Ethereum roadmap<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/acfc4eb85897497ba19f66ef9decf646.png" />With the “Surge” on the horizon promising faster transaction speeds and overall blockchain optimization, Ethereum’s development team is currently focusing on ensuring that the Shanghai update succeeds. This update will give users access to their ETH staking deposits held in the Beacon Chain smart contract.This is a major development in the Ethereum ecosystem, and great news for regular users and investors alike, as funds that were held for two years will soon be unlocked! And with increased liquidity on the Beacon Chain comes exciting opportunities to take advantage of Staking as a Service (SaaS).Ethereum developers are planning on rolling out a set of improvements to the Ethereum network in March 2023. Among them is EIP-4895, which promises enhanced performance and usability.From our perspective, this will change anything for our current SafeStake protocol, currently in beta phase.With the upcoming Shanghai Update, ETH holders participating in our testnet, as well as those interested in joining later on down the line, should be aware of its potential implications for staking. We believe it’s important to make sure everyone has a comprehensive understanding beforehand.<h2 id="header-1">Current situation of the Ethereum Staking market and what to expect in the future</h2>Currently,16 million ETH are staked in the Beacon Chain <a href="https://etherscan.io/address/0x00000000219ab540356cbb839cbe05303d7705fa" rel="noopener noreferrer nofollow">smart contract</a>. At the current price of ETH at the time of writing this post, this staked amount represents a value of USD $26 billion that will be available for withdrawal. Ethereum network’s total value staked (TVL in ETH) <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/2225462ed19040a8b61bece875aa3e1f.jpg" />To prevent any potential negative ramifications, the Ethereum Foundation has implemented a daily withdrawal limit of 40,000 ETH to help protect the network’s integrity.Rising staking levels are a major factor in the ongoing Ethereum price surge. With over 16 million ETH now locked up, it’s likely that even more users will take advantage of Ethereum’s new withdrawal flexibility and start staking.Optimists may have cause for hope as large institutions are expected to stake their ETH and take advantage of a generous annual percentage yield of nearly 5%, without sacrificing liquidity.Despite the trying macroeconomic conditions already present in 2023, there is glimmer of hope. The Ethereum Foundation’s revolutionary measure to reduce ETH volatility by capping daily withdrawal activity at 40,000 coins may help buoy prices despite an unstable global environment caused by events like the Ukraine-Russia conflict and high inflation rates.Here,it’s worth mentioning that the new Shanghai update will allow two types of withdrawals:<ul><li>Partial withdrawals: Balances in excess of 32 Eth (earned rewards) are withdrawn to an Ethereum address and can be spent immediately. The validator will continue to be a part of the beacon chain and validate as expected.</li><li>Full withdrawals: The validator will exit and stop being a part of the beacon chain. The entire balance (32 ETH principle and any rewards) of the validator is then unlocked and allowed to be spent after the exit and withdrawal mechanism is complete.</li></ul>Not all validators will be able to withdraw their funds quickly. Full withdrawals are possible via an exit, which places the validator into the exit queue. The exit queue depends on the size of the validator set in the network. This limit exists to regulate the rate of exit and entry into the beacon chain validator set. Those who want to completely exit and stop being Ethereum validators may have to wait, and there will not be a mass exit as some Ethereum detractors have previously claimed.On the other hand, partial withdrawals of rewards above the 32 ETH deposit are automatic and round-robin averaging with one sweep per week in the current design.According to Ethereum.org, “Until 327680 active validators in the network, 4 validators can be activated per <a href="https://www.notion.so/ethstaker-knowledge-base/staking-glossary#epoch" rel="noopener noreferrer nofollow">epoch</a>. For every (4 * 16384) &#61; 65536 active validators, the validator activation rate goes up by one.” A view of the Open Source Ethereum Explorer <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/494c83dae6fa460396601d71fa49c714.png" />Considering that there are just over 600,000 validators currently on the Beacon Chain, the exit rate of validators with a daily limit to preserve network stability is currently set at 4.34 days. This means it would take over a year for all of the validators to exit the set.Considering the current economic conditions, if there is a release of ETH into the market and there are incentives to sell them, the process will be slow and will have little impact on the ecosystem.From SafeStake’s perspective, the project aims to capture at least 10% of the ETH staking market and assumes the ETH staking reward rate is 10%. In this scenario, we expect to generate a total of 40,000 ETH in protocol fees from the validators on the network.Under the current staking reward rate (5%) and ETH Staked market size of 16 million ETH, this would generate just over $6.4 million in protocol fees.SafeStake projects that with growing interest in ETH 2.0 staking due to improvements in the blockchain network, the staking rate of Ethereum will be similar to that of Tezos, around 75%. In other words, there will be around 80 million ETH staked, nearly five times the current amount.<blockquote>With lower transaction costs and more options for staking, you can take advantage of exciting new ways to grow your assets. Unlock a world of potential with the latest trends in digital asset investing!</blockquote>Before the announcement of the implementation of EIP-4895, users with limited capital (less than 32 ETH) could only opt for Staking as a Service (SaaS) or pool staking, which simplified the staking process and made ETH 2.0 staking more accessible.This has led to the development of relatively centralized solutions such as Rocket Pool, Lido, and StakeWise, making ETH 2.0 staking popular with average crypto investors.The Shanghai update, aka EIP-4895, also brings revolutionary changes to the Ethereum network, like zero cost transactions and increased incentives for ETH 2.0 staking! This major upgrade ensures that users can withdraw funds easily while spurring greater adoption of staking activities on the blockchain.Despite a static minimum deposit threshold of 32 ETH needed to become an Ethereum validator, retail crypto investors still have the opportunity to reap average rewards through centralized options. As new products offering additional value emerge onto the market, these savvy individuals are likely testing them out and experiencing great success in return.Recent events, such as the collapse of Terra and FTX, have stimulated a shift in how security is viewed. New technologies like DVT and solutions that implement them, like SafeStake, Obol Tech, and SSV.Network, are revolutionizing the defense against these kinds of issues moving forward.This will allow more decentralized and custody-free options, like SafeStake, to establish the groundwork in the new order around Pooled Staking or Solo Staking services, offering safer and low-threshold alternatives for earning ETH staking rewards. How a new validator is created on SafeStake <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/e9f568fad3c748c29b4cf6000f5193ec.png" />SafeStake’s architecture even makes it possible for investors with minimal amounts of ETH to benefit from staking rewards by unlocking unprecedented opportunity via DVT-enabled Liquid Staking!SafeStake users will be able to enhance their rewards by staking ETH with the new EIP-4895 “Shanghai” update, taking advantage of liquid capital in sfETH tokenized form.Get the best of both worlds by earning staking rewards and flexibility with sfETH. These liquid staking tokens let you accumulate returns without having to stay dedicated to running a validator long-term on the Beacon Chain.!<h2 id="header-2">Other important considerations with the Shanghai Update</h2>With the implementation of <a href="https://eips.ethereum.org/EIPS/eip-4895" rel="noopener noreferrer nofollow">EIP-4895</a>, validators will be able to withdraw their Beacon Chain rewards to the Ethereum Virtual Machine (EVM). Any validator can remain in the set of validators and withdraw their participation rewards as long as their balance after the withdrawal is at least 32 ETH. With this, it’s important to note that withdrawing ETH involves a new type of transaction called a “withdrawal operation.” This is different from a ‘normal’ transaction on Ethereum. Withdrawal Operation transaction process <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/8ba3c7460c3d46648155467e8c787343.jpg" />As they are only a balance update, withdrawal operations do not incur a gas fee and the execution layer processes them immediately after the Beacon Chain requests them.It is worth mentioning that in order to perform a withdrawal operation, a validator must contain a field known as the ‘withdrawal credential,’ with the prefix 0x01. This migration is a one-time process and is a necessary requirement to activate withdrawals on the Beacon Chain.Additionally, to initiate a full withdrawal, the validator needs to sign a message that will be sent from its validator client, and the exit process details vary for each validator client.In addition to the EIP-4895 improvement, the Ethereum Foundation has already <a href="https://github.com/ethereum/execution-specs/blob/master/network-upgrades/mainnet-upgrades/shanghai.md" rel="noopener noreferrer nofollow">defined</a> the rest of the improvements to be implemented in the Shanghai update:<ul><li><a href="https://eips.ethereum.org/EIPS/eip-3651" rel="noopener noreferrer nofollow">EIP-3651: Warm COINBASE</a>: This proposal allows for separation of the block proper and block builder (PBS) and reduces the block construction cost. As a result, network users will pay lower gas fees and merchants using builders to perform complex transactions will no longer be responsible for failed transactions.</li><li><a href="https://eips.ethereum.org/EIPS/eip-3855" rel="noopener noreferrer nofollow">EIP-3855: PUSH0 instruction</a>: This EIP will allow for the introduction of a new instruction for the EVM that will help reduce the size of smart contracts and optimize contract code.</li><li><a href="https://eips.ethereum.org/EIPS/eip-3860" rel="noopener noreferrer nofollow">EIP-3860: Limit and meter initcode</a>: This proposal limits the maximum size of the boot code to 49152 and adds two additional gasses, one for each 32-byte portion of boot code. This will provide the ability for the network to resolve gas exceptions.</li><li><a href="https://eips.ethereum.org/EIPS/eip-6049" rel="noopener noreferrer nofollow">EIP-6049: Deprecate SELFDESTRUCT</a>: This improvement does not change the behavior of SELFDESTRUCT in and of itself, but formally announces the intentions of client developers to change it in future versions. It is recommended that software which exposes the SELFDESTRUCT opcode to users warn them about an upcoming change in semantics.</li></ul>It is expected that Zhejiang Testnet will become operational this month (February) to test the complete functionalities of the Shanghai update in a controlled test environment.<h2 id="header-3">Conclusion</h2>For institutional investors, the launch of withdrawals via the Shanghai update offers a unique chance for investment via ETH staking. As custodial services emerge for assets like ETH, institutions will be enticed to take part in liquid staking with less costs and more accurate error tracking.SafeStake is striving to ensure our protocol’s success by implementing technical improvements that follow the standards set forth by the Ethereum Foundation. This will enable validators on our platform to securely access their staking rewards and withdrawals when it launches on mainnet at the end of Q1 2023.<h2 id="header-4">About ParaState</h2>Parastate is participating in ETH 2.0 PoS with a new tech stack called SafeStake, a trust-minimized middle layer that promotes decentralized ETH 2.0 staking. SafeStake is the first Ethereum liquid staking pool protocol written in Rust that implements distributed validator technology (DVT). It utilizes HotStuff consensus and BLS Threshold Signature architecture to provide robust security and reliability, so validators can maximize their ETH staking rewards.<a href="https://www.parastate.io/" rel="noopener noreferrer nofollow">Website</a> | <a href="https://medium.com/ethereum-on-steroids" rel="noopener noreferrer nofollow">Blog</a> | <a href="https://twitter.com/_ParaState" rel="noopener noreferrer nofollow">Twitter</a> | <a href="https://t.me/ParaState" rel="noopener noreferrer nofollow">Telegram</a> | <a href="https://discord.com/invite/zFS3Mnfpwj" rel="noopener noreferrer nofollow">Discord</a> | <a href="https://github.com/ParaState" rel="noopener noreferrer nofollow">Github</a>

The Myths and Realities of the Ethereum Shanghai Update

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