Shanghai Upgrade = the end of collateralized derivatives? Venture capitalists selling LSD tokens, BitMEX founder also liquidating LDO

Shanghai Upgrade is expected to occur in less than 12 hours, with the most direct change being the official opening of ETH staking withdrawals. Does this mean that during the past lock-up period, the LSD protocol liquidity derivatives that could unlock ETH staking liquidity for users will no longer be of interest? On-chain analysis also reveals that venture capital institutions have begun to sell large amounts of LSD-related tokens today.

Shanghai Upgrade Imminent, VC Sells LSD Concept Coins

According to on-chain analysis from Lookonchain, venture capital firm Blockchain Capital sold:

• 1.5 million LDO tokens for approximately $2.52 million

• 65,352 RPL tokens for $2.9 million

They no longer hold LDO and have 107,085 RPL tokens valued at around $4.52 million remaining.

1/ 17-hour countdown until #Ethereum #Shanghai!

Blockchain Capital sold #LSD tokens today:
1.5M $LDO($2.52M)
65,352 $RPL($2.9M)

And currently holds no $LDO and 107,085 $RPL($4.52M). pic.twitter.com/hg17d0VJEG

— Lookonchain (@lookonchain) April 12, 2023

Blockchain Capital realized a profit of $1.05 million from the sale of LDO, bringing in over $2 million in profit from these two transactions:

• Purchased 1.5 million LDO tokens at an average price of $1.64 between January 27 and February 21, 2022

• Sold at an average price of $2.33

• Purchased with approximately 1,000 ETH and converted back to 1,871 ETH

• Profit of $1.05 million, 41.667%

Blockchain Capital realized a profit of $1.09 million from the sale of RPL:

• Purchased 61,539 RPL at an average price of $35 on October 8, 2021

• Purchased 59,236 RPL at an average price of $34 on April 15, 2022

• Sold 65,352 RPL at an average price of $44

• Profit of approximately $1.09 million

Blockchain Capital currently holds a total of 107,085 RPL tokens across two addresses.

These addresses include:

• 0x598: 55,423.55 RPL tokens

• 0x87c: 51,661.02 RPL tokens

• 0x702

Shanghai Upgrade Detrimental to Derivatives? Arthur Hayes Bearish on LDO

If Blockchain Capital has held ETH long-term since October 2021, the overall unrealized loss would reach -44%.

A similar trading mindset is one of the core principles behind Maelstrom Capital, a venture capital firm founded by BitMEX co-founder Arthur Hayes:

To seek returns higher than ETH and BTC.

Learn more about Arthur Hayes' venture Maelstrom Capital: focusing on investing in crypto infrastructure, "not hesitant to invest in shitcoins."

In a lengthy post released on April 12, Arthur Hayes announced the sale of all LDO holdings. He and Maelstrom's investment director both mentioned that the Shanghai upgrade would destroy Lido's dominant position in derivative quality collateral.

Reasons cited include:

• No contribution as a node service provider: Rocketpool node service providers need 32 ETH to become a single validator, while Lido does not.

• Too centralized: Node service providers generate private keys for users, not stakers.

• Cybersecurity risks: Lido's mechanism is similar to the hacked $200 million cross-chain bridge protocol Wormhole.

As of now, Lido's token price has dropped by 10.9% since April 11, while Rocketpool's token price has also seen a 13% decrease.

Their explanations are long-standing, with the main argument being that the targets Obol and ether.fi invested by Maelstrom Capital have better solutions. However, Lido also plans to move towards a more diverse node operator approach, and whether this is enough reason to be bearish on LDO remains to be seen.