The Ethereum Merge transitioned the network from proof-of-work (PoW) to proof-of-stake (PoS) in September of 2022, but users have not been able to unstake their staked ETH. While validators have been able to exit, there’s been no mechanism by which previously staked ETH could be withdrawn. The upcoming will finally enable this end-to-end unstaking flow, and it’s almost here: on March 14, 2023, Ethereum completed the Goerli public testnet upgrade, its final trial before enabling unstaking on mainnet. It’s now anticipated to complete the Shapella Upgrade (Shanghai and Capella upgrades) on or around mid April 2023. At this time, ETH holders will be able to withdraw their staked ETH and stake more without being subject to an indefinite lockup period.
What does the Shapella Upgrade mean for Coinbase users?
Coinbase account functionality including trading, deposits, and withdrawals, will not be impacted with the Upgrade. Customers will be able to make unstaking requests from their Coinbase account soon after the Shapella Upgrade is completed (we’re currently anticipating about 24 hours). All unstaking requests are processed on-chain, with Coinbase acting only as the conduit connecting customers, validators, and protocols. Our role is simply to pass unstaked ETH to customers when it is released by the protocol.
How will unstaking work?
Unstaking requests will open to all Coinbase customers at the same time and will be relayed to the Ethereum protocol and queued based on when they are received.
The time it takes to process unstaking requests is determined by Ethereum protocol, which takes into account the number of stakers and demand for unstaking at a given time. We anticipate the demand for unstaking on the network to be high soon after the upgrade, as this is the first time stakers have been able to unlock funds since December of 2020. Since we don’t control the unstaking process, we can’t share an exact waiting period with customers when they request to unstake but we’ll provide an estimate based on the Ethereum network processing times. Customers may need to remain patient: we anticipate the Ethereum protocol will take weeks to months to process unstaking requests immediately following the upgrade.
For those seeking immediate liquidity, Coinbase has a token that lets users unlock the value of their staked ETH. Users can now wrap staked ETH (ETH2) to cbETH on the Coinbase app to sell or use it in DeFi. There are zero fees for wrapping to cbETH and users continue to earn staking rewards so long as the token is held. Users can also unwrap their cbETH to claim the underlying staked ETH and any accrued rewards. .
For Coinbase Prime clients:
We do not expect any interruption of service during the upgrade. We intend to make unstaking available for Coinbase Prime clients within 24 hours after the upgrade has been completed.
In addition to unstaking, clients will gain access to newly liquid validator rewards in the days following the upgrade. Every few days, the protocol will make these rewards liquid via a “skimming” process. We expect skimming to occur every few days initially, but this frequency could change in the future and is controlled solely by the Ethereum network.
For Coinbase Exchange clients:
Coinbase Exchange functionality will not be impacted and clients with ETH and ERC-20 balances should experience no impact with the Shapella upgrade.
For Coinbase Wallet users:
Coinbase Wallet users with ETH and ERC-20 balances, as well as NFTs or DeFi positions on the Ethereum network, should experience minimal to no impact. Assuming a successful transition, the network will remain operational, and users can continue to transact with their self-custodied crypto on the Ethereum mainnet once the transition is complete. As always, network fees will be set by the network based on demand, and as a reminder, Coinbase neither sets nor collects those fees.
For Coinbase Cloud customers:
Customers running their staking or node infrastructure through Coinbase Cloud should expect to experience a routine upgrade with approximately 10 minutes of downtime in advance of the Shapella Upgrade. Customer infrastructure should experience little to no downtime when the Upgrade block is passed, and changes will be backwards compatible. Our Customer Success team will reach out to inform customers of upgrade timelines and if any other actions are required to prepare for the Upgrade.
For Coinbase Commerce customers:
Coinbase Commerce will continue processing payments and customers should see no impact.
A note on US taxes related to Ethereum staking rewards:
Since the Shapella Upgrade enables unstaking and the payout of staking rewards, customers will generally become liable for taxes owed on any rewards earned leading up to the upgrade and after. For US Coinbase customers who hold staked ETH (ETH2) or cbETH, Coinbase will issue any required 1099-MISCs including the taxable activity relating to these assets, consistent with general tax guidance. Coinbase does not provide tax advice but users can find our latest guidance on the impact to Ethereum staking rewards .
We aim to support the Shapella Upgrade with the least amount of friction possible for our users — without compromising on security. We’ll continue to provide updates on our , and as more information becomes available.
As a reminder, the Shapella Upgrade is the culmination of years of work by the Ethereum Foundation, independent researchers, client teams, infrastructure providers like Coinbase Cloud, and many others. At Coinbase, our role is to protect users’ assets and help ensure a seamless transition across Coinbase products. For Ethereum network specific information, follow the as well as the Ethereum network on .
About Nick Prince
Senior Product Manager, Crypto
Feb 22, 2024
Feb 16, 2024