The Ethereum network successfully completed its Shapella upgrade on April 13, 2025, at 6:30 AM Beijing time. According to real-time data from Token Unlock, approximately 50,000 ETH were withdrawn immediately post-upgrade. Over the following 11 hours, an estimated 107,000 ETH were redeemed, with around 525,000 ETH still pending withdrawal. The total staked ETH dropped to 17.64 million, and the annualized staking yield remains steady at 5.06%.
This milestone marks a transformative moment for Ethereum and decentralized finance (DeFi). With the Shanghai upgrade enabling full withdrawal of staked ETH, the long-anticipated liquidity release has arrived—ushering in a new era for Liquid Staking Derivatives (LSD), one of the most dynamic sectors in crypto today.
👉 Discover how liquid staking is reshaping the future of decentralized finance.
The Birth of Liquid Staking (LSD)
In its early days, Ethereum operated similarly to Bitcoin using a Proof-of-Work (PoW) consensus mechanism. Miners relied on GPU power to validate blocks and earn ETH rewards. However, this energy-intensive model began evolving in December 2020 when Ethereum officially entered its 2.0 phase—initiating the transition from PoW to Proof-of-Stake (PoS).
Although the full shift wasn’t realized until The Merge in late 2022, the foundation was laid earlier. Starting December 1, 2020, users could begin staking ETH on the Beacon Chain, marking the birth of the liquid staking ecosystem.
Under PoS, validators must stake 32 ETH to participate in block validation and earn rewards—eliminating the need for mining hardware. This change democratized participation but introduced a major limitation: staked ETH was locked with no option for withdrawal—until now.
This lock-up period gave rise to Liquid Staking Derivatives (LSD)—tokens that represent staked ETH and can be freely traded or used across DeFi platforms. Protocols like Lido issue stETH, while Rocket Pool offers rETH, allowing users to maintain liquidity while earning staking rewards.
A Turbulent Yet Resilient Journey
By December 2021, nearly a year after the Beacon Chain launch, Ethereum 2.0 staking had gained significant traction. According to official data from ethereum.org, over 8.75 million ETH were staked—representing more than 14.28% of the circulating supply—with over 273,600 active validators.
The market responded with a wave of staking services, ranging from centralized exchanges to decentralized protocols. However, the road wasn’t smooth.
In May 2022, the collapse of Terra’s LUNA token sent shockwaves through the crypto ecosystem. As market panic spread, concerns emerged about stETH de-pegging from ETH—similar to how UST lost its dollar peg. At one point, stETH traded at a significant discount, fueling fears of a broader crisis.
Yet, unlike UST, stETH was backed by real assets—actual staked ETH—and the underlying protocol remained solvent. The crisis passed without systemic failure, reinforcing confidence in well-designed LSD models.
👉 See how decentralized staking protocols weathered the storm and emerged stronger.
Post-Merge Momentum and Regulatory Challenges
After The Merge succeeded in September 2022, Ethereum slashed its energy consumption by over 99.9%, becoming a poster child for sustainable blockchain technology. The transition also paved the way for future upgrades like Shanghai, which would finally unlock staked ETH.
However, growth didn’t go unchallenged. On February 9, 2025, the U.S. Securities and Exchange Commission (SEC) announced plans to restrict retail crypto staking services in America. In response, Kraken—one of the largest centralized staking providers—discontinued its staking offerings for U.S. customers.
Despite this regulatory headwind, the overall LSD market showed resilience. Users began migrating from centralized platforms to decentralized LSD protocols like Lido Finance and Rocket Pool. This shift reinforced decentralization—the very ethos Ethereum was built upon.
According to DefiLlama, the total value locked (TVL) in liquid staking protocols has reached $16.2 billion, making LSD the second-largest segment in DeFi, just behind stablecoins.
Why Liquid Staking Is Transforming DeFi
The rise of LSD is more than just a trend—it’s a structural evolution in how capital is utilized in Web3.
When users stake ETH through LSD protocols, they receive derivative tokens (e.g., stETH) that can be used across DeFi applications:
- Yield farming: Deposit stETH into lending platforms like Aave or Curve to earn additional interest.
- Leveraged strategies: Use stETH as collateral to borrow ETH and stake again—amplifying returns.
- Improved capital efficiency: No longer must choose between earning staking rewards and maintaining liquidity.
This flexibility drives deeper liquidity across DeFi, enhances protocol security through increased staking participation, and creates a compounding effect throughout the ecosystem.
Moreover, Ethereum’s shift to PoS has made it deflationary under certain conditions—burning more ETH than is issued due to fee burns exceeding issuance from staking rewards. This scarcity dynamic strengthens long-term value accrual.
Frequently Asked Questions (FAQ)
Q: What is the Ethereum Shanghai upgrade?
A: The Shanghai upgrade enables withdrawals of staked ETH and rewards for the first time since Ethereum transitioned to Proof-of-Stake in 2022. It completes a critical phase of Ethereum’s evolution by restoring full liquidity to staked assets.
Q: Will unlocking staked ETH cause a price crash?
A: Despite initial fears, markets have remained stable post-upgrade. Many holders are not rushing to sell; instead, they’re reinvesting in LSDs or DeFi protocols. Additionally, withdrawals are rate-limited by network parameters, preventing sudden floods of supply.
Q: What are Liquid Staking Derivatives (LSDs)?
A: LSDs are tokens that represent staked ETH (e.g., stETH, rETH). They allow users to earn staking rewards while retaining liquidity—usable as collateral or tradable assets in DeFi.
Q: Is liquid staking safe?
A: While reputable LSD protocols have strong security track records, risks include smart contract vulnerabilities and potential centralization if too much power concentrates in one protocol (e.g., Lido’s dominance). Diversification and audits help mitigate these concerns.
Q: How does LSD benefit the broader Ethereum ecosystem?
A: LSD increases capital efficiency across DeFi, boosts network security via higher staking participation, and supports innovation through new yield-bearing assets and financial instruments.
Q: Can I stake less than 32 ETH?
A: Yes! LSD protocols allow fractional staking. You can stake any amount of ETH and receive a proportional share of rewards via liquid tokens—removing barriers to entry for smaller investors.
The Road Ahead: Ethereum’s Next Chapter
With the Shanghai upgrade complete, Ethereum has fulfilled a major promise: full functionality under PoS. Stakers now enjoy both yield and liquidity—a game-changer for adoption.
Looking forward, further upgrades like EIP-4844 (Proto-Danksharding) aim to reduce rollup costs and scale Layer 2 solutions—making Ethereum faster and cheaper to use.
Meanwhile, LSD continues to mature as a core pillar of DeFi. As institutional interest grows and regulatory clarity improves, liquid staking could become a standard financial primitive—akin to interest-bearing accounts in traditional finance.
Ethereum’s transformation—from energy-hungry miner network to efficient, deflationary smart contract platform—is no longer theoretical. It’s here.
👉 Explore how next-gen staking is powering the future of decentralized finance.
Core Keywords: Ethereum Shanghai Upgrade, Liquid Staking Derivatives (LSD), DeFi innovation, Proof-of-Stake (PoS), staked ETH withdrawal, Ethereum deflationary model, decentralized finance growth.