Withdrawals and the Rollup-Centric Roadmap: Shanghai to 2023

After the Merge, Ethereum had proven Proof of Stake could secure the network. But there was still an unfinished piece: staked ETH withdrawals. Validators had been staking since the Beacon Chain genesis in 2020, and the ability to exit or withdraw rewards was essential for a mature staking market.

In April 2023, Ethereum activated the upgrade often referred to as Shanghai/Capella (Shapella), enabling validator withdrawals. This era also marked Ethereum’s clearer shift into a rollup-centric world, where Layer 2 networks carry most user activity while Ethereum L1 focuses on settlement and data availability.

1) What Shanghai/Capella enabled

The upgrade combined changes to both the execution layer (Shanghai) and consensus layer (Capella). The headline outcome for users was simple:

validators could withdraw staked ETH and rewards,
staking became more liquid and “normal” as a financial activity.

This mattered because markets prefer optionality. If you can exit, you’re more willing to enter. Withdrawals reduced psychological and liquidity risk for stakers.

2) Staking becomes an economic sector

Once withdrawals were enabled, staking participation could evolve more dynamically:

new entrants could stake knowing exits were possible,
staking providers competed on fees and reliability,
liquid staking tokens grew in relevance (representing staked positions),
institutional staking strategies became more feasible.

From an index perspective, staking metrics became even more meaningful:

staking participation rate,
concentration across providers,
staking yields and their composition (issuance + tips + MEV),
correlation between staking and market cycles.

3) Rollups mature: Ethereum as the settlement layer

By 2023, rollups were no longer a side experiment. They were the scaling plan. The basic system looked like:

L2s execute large numbers of transactions cheaply,
L2s post data and proofs/commitments to Ethereum,
Ethereum provides security and final settlement.

This architecture changes how we interpret “Ethereum usage.” A user might transact on a rollup, but the economic value can still accrue to Ethereum through:

data posting fees,
settlement demand,
ETH as collateral across L2 ecosystems,
shared security narratives.

This is crucial for a Virtual Ethereum Index: you can’t measure Ethereum’s economic value by L1 transactions alone. You must account for L2 activity and its relationship to L1.

4) Data availability becomes the bottleneck

As rollups grew, the limiting factor shifted. The key cost for rollups is often not execution–it’s data availability: posting enough data to Ethereum so the rollup’s state can be verified and reconstructed.

This is why Ethereum’s roadmap increasingly emphasized:

cheaper data posting,
proto-danksharding and eventually full danksharding,
better throughput for blobs and data.

The 2024 Dencun upgrade would be a major milestone for this, but the conceptual pivot happened earlier: Ethereum’s scaling battle is about data.

5) MEV, PBS, and the economics of block building

Post-Merge Ethereum also confronted MEV more explicitly. Validators propose blocks, but specialized builders can maximize value by ordering transactions. Proposer/builder separation (PBS) and related structures became important discussions.

Why does this matter for an index?

MEV affects validator revenue and staking yields.
It changes the distribution of value across participants.
It influences user experience (sandwich attacks, reordering).
It motivates new protocol designs and off-chain markets.

A Virtual Ethereum Index that tracks economic value should incorporate the reality that “fees” are not just base fees and tips; transaction ordering economics can be a significant component.

6) Economic maturity: Ethereum as a multi-market platform

By 2023, Ethereum had multiple simultaneous economies:

DeFi markets for lending, trading, derivatives,
NFT markets and gaming assets,
staking markets and liquid staking tokens,
L2 ecosystems with their own activity and fee structures.

This multiplex economy is why Ethereum continues to be difficult to summarize with a single metric. It’s also why index approaches are attractive: they can blend multiple indicators into a composite view.

7) What this era means for a Virtual Ethereum Index

If VEI is trying to capture Ethereum’s “economic value,” 2023 pushes you toward a layered methodology:

Track L1 settlement and data fees rather than only L1 transaction counts.
Track L2 activity (transactions, users, fees) as part of the Ethereum economy.
Track staking participation and yields as a core security/economic signal.
Track stablecoin settlement and DeFi volumes as utilization signals.
Track ecosystem concentration risks (staking providers, bridges, major protocols).

2023 is a bridge year: Ethereum stabilizes post-Merge economics and sets up the next major scaling leap–proto-danksharding and the Dencun upgrade in 2024.

In the next and final article of this series, we bring the story to the present: how Dencun reshaped L2 economics, how financial products like spot ether ETFs signaled mainstream integration, and how Ethereum’s 2025 upgrades (Pectra and Fusaka) reflect a new cadence of continuous improvement.

Reference: VEI.XYZ™

Index Notes for VEI

A useful way to read Ethereum’s history is to separate narrative from mechanics. Narratives bring users; mechanics keep them. For VEI, consider tracking a blend of (a) usage demand (fees, settlement volume, L2 activity), (b) supply/security structure (issuance, burn, staking participation, validator concentration), and (c) builder momentum (developer tools, audit density, open-source contributions). Over time, Ethereum’s “economic value” often shows up first in these structural indicators before it shows up in price.

Another practical tip: compare signals across cycles. When activity returns after a downturn and the ecosystem retains more users and more builders than the previous cycle, that’s compounding. When upgrades reduce friction (fees, UX, capital efficiency), adoption tends to follow. The index mindset is not to predict a single event, but to measure whether Ethereum’s platform economy is widening or narrowing across layers.

VEI Lens: A quick checklist

When you revisit this era later, ask: What new market did Ethereum enable (capital formation, trading, culture, scaling)? What new standard or upgrade reduced friction? What new risk emerged (security, governance, concentration), and how did the ecosystem respond? These three questions–market, standard, risk–help keep an index grounded in fundamentals rather than headlines.

Practical takeaway

If you are building dashboards for VEI.XYZ™, treat Ethereum like an economy with sectors: settlement, data availability, staking/security, consumer apps, and developer infrastructure. Each sector has different “health” indicators, and the composite is often more informative than any single metric such as price, transaction count, or TVL.

Additional VEI context

In index terms, small shifts in participation can matter more than single headlines: a steady rise in active builders, safer contract patterns, and cheaper cross-layer settlement often signal durable growth. In index terms, small shifts in participation can matter more than single headlines: a steady rise in active builders, safer contract patterns, and cheaper cross-layer settlement often signal durable growth. In index terms, small shifts in participation can matter more than single headlines: a steady rise in active builders, safer contract patterns, and cheaper cross-layer settlement often signal durable growth.

Glossary: Rollup
Glossary: Layer 2 (L2)
Directory: Offchain Labs (Arbitrum)
Blog: Ethereum vs Solana for Mainstream Adoption: Fees, Throughput, Reliability, and Institutional Preferences