The Ethereum Merge (executed on 15/09/2022):

- Refers to the transition from proof-of-work (PoW) to proof-of-stake (PoS) consensus

mechanism in Ethereum.
- Achieved by integrating the PoS Beacon Chain (created in 2020) with the Ethereum
Mainnet.
- PoS is more energy-efficient than PoW, resulting in a 99.95% reduction in energy
consumption according to Ethereum co-founder Vitalik Buterin.
- PoS also increases accessibility to staking (ETH stacked from 2020 can now be
unstacked) and passive income without locking up assets indefinitely.

The Shanghai Upgrade (scheduled for April 2023):

- Series of upgrades for the Ethereum network
- Introduces sharding, a database-partitioning technique, to enable processing of more
transactions per second and improve network scalability.
- Allows ETH stakers to remove both their staked ETH and rewards, improving user
experience and accessibility (accessible to a wider range of stakeholders)
- Expected to reduce gas fees for layer-2 solutions and make Ethereum more cost-
effective to use.
- Implementation of EIP-4895 could impact ETH prices, with 14.09% of eligible ETH
tokens currently staked, and the possibility of significant liquidity flooding back into
the market.

Implications:
- According to data from Staking Rewards, 14.09% of all eligible ETH tokens have been
staked (16 million tokens, ±$26m), and when staking withdrawals are opened up,
this could amount to significant liquidity flooding back into the open market,
putting some downward pressure on ETH prices. However, it is unlikely that all the
14.09% of ETH tokens are immediately pulled out and sold off, so keeping an eye on
the percentage of ETH coins staked would be advisable. (The other 86% has not been
stacked and is still using the PoW consensus mechanism)
- Move to PoS makes Ethereum more energy-efficient and accessible, likely to attract
more developers and businesses to build on the platform.
- Introduction of sharding will enhance scalability and capacity for processing more
transactions.
- Shanghai Upgrade will improve user experience, reduce gas fees, and make
Ethereum more cost-effective to use.
- Implementation of EIP-4895 could impact ETH prices, with potential for significant
liquidity to flood back into the market, but also possibility of increased attractiveness
to users due to improved liquidity.

EIP-4895 (Ethereum Improvement Proposal):

- A proposal for the Shanghai upgrade that would allow ETH stakers to remove their
staked funds as validators, which was not possible since the PoS-based Beacon Chain
was launched.
- According to data from Staking Rewards, 14.09% of all eligible ETH tokens have been
staked, which means that there is a significant amount of liquidity currently locked
up in staking contracts.
 - Once staking withdrawals are opened up with the implementation of EIP-4895, this
could result in significant liquidity flooding back into the open market, potentially
putting downward pressure on ETH prices.
- However, it is unlikely that all of the 14.09% of ETH tokens currently staked will be
immediately pulled out and sold off, so the impact on prices may not be as severe as
some anticipate.
- On the other hand, the increased liquidity resulting from the ability to withdraw
staked ETH could make it more attractive to users who were previously hesitant to
participate in staking due to the long lockup period, potentially leading to increased
demand for ETH and upward pressure on prices.

Notes:
People can withdraw PoW ETH, but only if they have not yet deposited it into the Ethereum
2.0 deposit contract and converted it into PoS ETH. Once the PoW ETH has been converted
to PoS ETH, it can only be withdrawn as part of the staking rewards, and the process of
withdrawing it is subject to certain rules and restrictions.

JPM believes that the stacking rate might rise from 14% to slowly converge to the 60% PoS
industry average.