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Since Ethereums highly anticipated proof-of-stake update, Shapella, completed smoothly, and the market price of ether shot up over $2,000 per token, crypto developers are even more optimistic about the future of Web3.

And though we may see increased selling pressures in the coming weeks for fear the upgrade will attract regulators attention, the current state of staked ETH holdings seems to indicate stability.

According to research published by BeInCrypto this month 60% of all staked ETH is held at a loss, including the holdings at Lido DAODAO. Holding approximately 30% of all staked ETH at an average loss of over $1,000 per token, this would seem to work against excessive selling, which normally occurs when investors are sitting on relatively large gains. So, if the Shapella upgrade is not primed to lead to forced selling of staked ETH, what are some of the implications of this upgrade?

Lets take a look at a few of the reasons why this most recent upgrade may cause a boom period for Ethereum development and innovation.

The Ethereum 2.0 upgrade process has been underway for years, and some validators have had staked ether locked up for multiple years at this point. A major component of the Shapella upgrade is that for first time users can withdraw these funds in one of two ways. A partial withdrawal allows users to withdraw the block rewards that have accumulated over time and have been taxed even though they have not been accessible that are in excess of the 32 ETH balance necessary to run a validating node. A full withdrawal, as the name indicates, would allow users to withdrawal the totality of staked ETH.

In any case this Shapella upgrade will create a more liquid and easily tradeable marketplace for ETH going forward, which will help developers, investors, and innovators create more robust and differentiated products.

Estimates vary, but over the coming week there are going to be tens of billions in ether that, after being locked up in staking protocols for various lengths of time, will be released to these users. In addition to increasing liquidity and market depth for traders, this will also mean there will be literally more ETH available for developers and innovators seeking to build new applications running on the Ethereum blockchain.

Every cryptoasset faces the following price paradox; if investors and the market in general believes that the price of this token will increase dramatically over a period of time, the likelihood of this same token being used as fuel, or gas for applications will dimmish. With limited volatility resulting from this upgrade, sentiment seems to indicate that developers will be more comfortable building more non-financial and non-speculative applications using ETH going forward.

With the Ethereum blockchain already forming the bedrock of many Layer 2 and Web3 applications and use cases, having a more liquid market for these tokens will invariably make it simpler and faster to continue these existing trends.

One additional benefit to this upgrade, the subsequent releasing of staked ether, and refocusing on this token in particular, is that it will reignite the conversations that had previously occurred around the topic of classification. Crypto regulation is a hotly debated and contentious topic, with many bemoaning the regulation-by-edict approach that Gary Gensler seems to be taking at the Securities and Exchange Commission. That said, and accompanied by pressure by some lawmakers for additional clarity into how these decisions are being made, Ethers rising prominence might force regulatory issues back onto the front burner.

Specifically, the treatment of staking rewards, and the staking process overall, has been a contentious topic between some in the tax community. Under current U.S. tax guidance, staking rewards are taxed upon creation, even if these rewards were unable to be accessed previously. As these rewards and assets become more widely traded, able to be reinvested into other projects, and better understood by institutions and individuals alike, regulators will hopefully be forced to take a more productive stance.

The Shapella upgrade has been a long time coming, was successfully completed, and has altered the ETH landscape in significant ways moving forward. Investors, developers, and regulators alike should take notice.

I am a professor at the City University of New York Lehman College. I serve on the Advisory Board of the Wall Street Blockchain Alliance, where I chair the Accounting Work Group. I am also the chairperson of the NJCPA's Emerging Technologies Interest Group (#NJCPATech). I sit on the Advisory Board of Gilded, a TechStars 19 company and AICPA-CPA.com startup accelerator participant. I was a Visiting Research Fellow at the American Institute for Economic Research during 2019.

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Ethereum Upgrade: How Shapella Could Expand Crypto Adoption - Forbes