A quiet revolution unfolded in the decentralized finance ecosystem on April 28, 2023, as liquid staking protocols officially surpassed decentralized exchanges to become the largest DeFi category by total value locked. The milestone, driven primarily by the Ethereum network’s Shapella upgrade just two weeks prior, signals a fundamental shift in how capital flows through the decentralized economy.
TL;DR
- Liquid staking dethroned decentralized exchanges as the top DeFi category by TVL on April 28, 2023
- The Ethereum Shapella upgrade on April 12 enabled staking withdrawals for the first time in over two years
- 856,000 ETH in partial withdrawals and 232,000 ETH in full unstaking occurred in the first week post-Shapella
- Contrary to fears, no significant sell pressure materialized as most withdrawn ETH was reinvested
- By April 28, cumulative exited stake exceeded withdrawn rewards for the first time since the upgrade
The Shapella Catalyst
On April 12, 2023, the Ethereum network underwent the Shanghai-Capella hardfork, commonly known as Shapella, which enabled the withdrawal of ETH staked for the Proof-of-Stake consensus mechanism. For more than two years, validators had been unable to access their staked capital, creating a massive pool of illiquid assets. The upgrade changed that overnight, and the market response defied nearly every bearish prediction.
In the first week following the upgrade, approximately 856,000 ETH in partial withdrawals — representing accumulated staking rewards — were automatically distributed to validators every 4.5 days. Additionally, 232,000 ETH was fully unstaked by validators choosing to exit their positions entirely. Partial withdrawals accounted for roughly 80 percent of the total released ETH during this period.
The exchange Kraken alone exited 125,088 ETH within the first week, driven by regulatory pressure from the SEC to close its United States-based staking service. Despite this significant withdrawal, the overall market absorbed the supply without disruption.
Sell Pressure That Never Materialized
Perhaps the most remarkable aspect of the post-Shapella period was the absence of meaningful sell pressure. Many analysts had warned that unlocking billions of dollars in staked ETH would trigger a massive sell-off. The data tells a different story. Exchange inflow volumes remained well within normal weekly ranges, with up to 1.8 million ETH flowing into exchanges in the first seven days after the upgrade — a figure entirely consistent with typical market behavior.
According to on-chain analytics from Glassnode, by April 28 the cumulative sum of fully exited stake actually exceeded that of withdrawn rewards for the first time since the upgrade. This was a significant development, as it indicated that many stakers were choosing to completely exit their validator positions rather than simply collecting accumulated rewards.
Ethereum’s price action supported the narrative of resilience. After climbing to approximately 2,110 dollars in the week following the upgrade, ETH settled around 1,893 dollars by April 28 — a decline driven more by broader macroeconomic headwinds than by any staking-related selling. Bitcoin, for comparison, held steady at approximately 29,340 dollars on the same date.
Liquid Staking Takes the Crown
The real story of April 28 was the structural shift in DeFi’s capital allocation. Research from Binance confirmed that liquid staking protocols overtook decentralized exchanges in total value locked by a margin of approximately 6.8 million dollars on that date. DEXes had been the dominant DeFi category for the longest time, but the post-Shapella capital rotation proved decisive.
Lido Finance, the largest liquid staking provider, maintained its dominant position, while competitors like Rocket Pool and Coinbase’s staking service also saw significant inflows. The emergence of Liquid Staking Derivatives, known as LSDfi, created an entirely new sub-ecosystem of protocols built on top of staking receipts such as stETH and rETH. New projects like Lybra Finance, launched in April 2023, quickly gained traction by offering yield-bearing stablecoins backed by staked ETH.
The validator withdrawal process itself became more efficient over the weeks following the upgrade. Initially, around 300,000 stakers needed to update their withdrawal credentials to receive rewards. By the end of April, 98 percent of credentials had been updated, bringing the withdrawal timeframe in line with the protocol’s intended design of approximately 4.5 days.
The Reinvestment Loop
Rather than cashing out, many stakers and staking service providers chose to reinvest their withdrawn rewards. This behavior created a powerful feedback loop: rewards were withdrawn, converted into liquid staking tokens, and redeposited into staking protocols — effectively compounding yield while maintaining liquidity. The result was a net increase in total staked ETH even as withdrawals were being processed.
This dynamic fundamentally altered the DeFi landscape. Liquid staking tokens like stETH became the backbone of a growing ecosystem of yield strategies, lending collateral, and trading pairs. The composability of these tokens meant that capital could simultaneously earn staking rewards and serve as collateral in lending protocols or liquidity pools.
Why This Matters
The overtaking of DEXes by liquid staking as the largest DeFi category represents more than a statistical milestone — it reflects a maturation of the Ethereum ecosystem. Staking, once seen as a risky and illiquid commitment, has been transformed into a liquid, composable financial primitive that underpins an expanding universe of DeFi applications. The successful Shapella upgrade proved that Ethereum’s transition to Proof-of-Stake could handle the most challenging test: allowing capital to flow freely without destabilizing the network. As the LSDfi ecosystem continues to develop, the implications extend beyond DeFi into questions of network security, institutional participation, and the future of yield generation in the digital asset space.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers should conduct their own research before engaging with any DeFi protocol or cryptocurrency investment.
shapella was the biggest nothingburger for sell pressure. everyone just restaked somewhere else
856K partial withdrawals in the first week alone. the queue moved way faster than anyone modeled
856K partial withdrawals in a week and the exit queue barely moved. the validators who stayed were the ones earning real yield
lido ate most of that restaking flow. went from dominant to even more dominant post-shapella. the centralization concerns got buried under the yield
lido going from dominant to even more dominant post-shapella is the part nobody wants to talk about. single protocol controlling that much stake is a systemic risk
everyone restaked because the yields were too good to pass up. shapella proved the sell pressure thesis wrong and restaking thesis right
232K ETH fully unstaked and the price barely moved. bears were so wrong on this one
DEXs losing the top spot to staking was inevitable once withdrawals opened up. capital goes where it earns yield