According to crypto analysts, Ethereum’s Shanghai upgrade brought a record-breaking weekly inflow of ether (ETH) deposits for staking last week, mainly driven by institutional staking service providers and investors reinvesting rewards after withdrawal.

Investors deposited some 571,950 ETH tokens into staking contracts, worth more than $1 billion, according to a Dune Analytics data dashboard created by Tom Wan, an analyst of digital asset investment firm 21Shares.

This was the most significant weekly token inflow in ether staking’s almost two-and-a-half-year history, per blockchain data provided by 21Shares.

The Ethereum blockchain completed its highly anticipated tech upgrade, often called Shanghai or Shapella, on April 12. The initiative enabled the withdrawal of tokens previously locked up in staking contracts for the first time. It was the last key step after last year’s Merge to complete the network’s transition to validating transactions through staking from a mining-based system.

ETH, the network’s native token and the second largest cryptocurrency by market capitalization after bitcoin (BTC), surged following the successful implementation of the upgrade but relinquished all its gains last week in a broader crypto market sell-off, caused mostly by macroeconomic concerns about inflation and a looming recession.

Since the Shanghai upgrade went live, the top five institutional-grade staking service providers which are Bitcoin Suisse, Figment, Kiln, Staked.us, and Stakefish, staked a total of 235,330 ETH combined, worth some $450 million, according to 21Shares’ Dune dashboard.

According to Anders Helseth, Vice President of Digital asset market research firm, K33 Research, another likely catalyst for the record inflow has been investors choosing to reinvest their previously earned and withdrawn rewards from staking.

Through the first eight days after the upgrade, investors withdrew some 900,000 ETH in staking rewards. Meanwhile, staking deposits totaled some 667,000 tokens, which was six times larger than the amount deposited during the last eight days before allowing withdrawals.

“The dynamic indicates that investors decided to restake a large part of the withdrawn rewards,” Helseth explained.

According to Market analyst and former head of research at Genesis Trading and CoinDesk, Noelle Achison, the Shanghai upgrade was a net positive in terms of total staking inflows.

“So far, the rhythm of new deposits has exceeded the amount leaving the network, if rewards can be excluded,” she said.

The reason for differentiating reward withdrawals from full exits comes from how Ethereum’s staking system works. Individual stakers or staking services have to lock up exactly 32 ETH to open a node and earn rewards for securing the network. Keeping the accrued rewards in the validator node does not improve the node’s return. 

Achison explained that it’s logical for stakers to withdraw rewards, bundle the tokens and establish new nodes to increase potential returns.

“It seems this is what is happening. Overall net inflow has been positive, which suggests that a significant portion of these rewards are being restaked,” she noted.

The trend of reinvesting rewards is also potentially a positive sign for ETH price as it reduces sell pressure, according to Acheson, which is likely to end up being much less than many feared.