Last year's Shanghai upgrade on Ethereum was probably the biggest event many people saw after entering the crypto space for the first time. There was a lot of discussion at the time, but many newcomers simply couldn't understand what was really happening—they just knew it seemed important. Today, I’ll give you a straightforward explanation.

Simply put, the Shanghai upgrade was aimed at solving one problem: previously, people could stake ETH to participate in network validation, but their funds were locked and couldn’t be withdrawn. After Ethereum switched from mining (PoW) to staking (PoS), users could stake 32 ETH to help validate transactions, but those funds remained locked. The Shanghai upgrade’s hard fork essentially opened the floodgates, allowing staked funds to finally flow freely.

Regarding the market impact of this upgrade, the most discussed topic was whether ETH would plummet in price. The logic seemed reasonable—since staked ETH could now be withdrawn, some might sell off, causing a dump. But the reality wasn’t that simple. My observation was that this impact might have been exaggerated. The reason is straightforward: the exchange rate between stETH and ETH has always stayed around 1:1. Those wanting to sell had already withdrawn through liquidity staking platforms long before Shanghai, so the price impact was likely limited.

Besides price, there are a few other aspects worth paying attention to. First is the increased attractiveness of the ecosystem. The PoS mechanism has become more mature, which will likely attract more developers and users, potentially bringing more projects into the Ethereum ecosystem. Second, liquidity staking platforms might face some pressure. Their core value was helping users access liquidity early, but that need has been reduced. On the other hand, users will choose based on their risk preferences—whether to stake directly or use platforms depends on how they weigh the risks.

Another perspective is market flexibility. Allowing withdrawals reduces artificial locking of funds, which benefits the overall crypto market balance. In the long run, such upgrades promote industry innovation. As the Ethereum ecosystem becomes more robust, it will attract more developers and institutions, which is positive for the entire crypto market.

Looking back, while the Shanghai upgrade didn’t cause the dramatic volatility some expected, it was a crucial step in Ethereum’s development. This pragmatic upgrade approach might be more valuable to watch than projects that hype concepts.