(Bloomberg) -- Ethereum’s looming software update sent a slew of crypto tokens tied to so-called staking apps that are poised to absorb the biggest impact from the tweak into a slide.

The upgrade, known as Shanghai and expected to happen on Wednesday evening New York time, will for the first time let people withdraw Ether they’ve pledged, or staked, to support the Ethereum network and earn rewards. About a third of the pledged Ether is deposited into so-called liquid-staking apps, such as Lido and Rocket Pool, that issue derivative tokens that can be traded, lent or borrowed in other apps.

As Shanghai approached, prices of tokens that govern such liquid-staking apps declined, with the biggest, Lido, down 4.5% in the last 24 hours, and about 23% over the last 30 days, according to CryptoSlate. Prices of tokens for the entire sector are down 3.6% in the last 24 hours, CryptoSlate data showed.

Some traders are exiting liquid-staking apps for fear of glitches in Shanghai, or to get ahead of any withdrawals from those apps. (Lido is slated to enable withdrawals in May.) THey worry that Shanghai will set off a mass reshuffle, as users pull out of some staking apps and “re-stake” with new service providers. With Lido already holding the biggest share of Ethereum staking, many users may opt to take their coins currently locked with Lido to its competitors, to reduce worries about centralization risk. 

Many of the liquid-staking app’s tokens have rallied in recent months, and some traders may be choosing to exit at a gain.

“People basically are taking their profits because major events like these almost always tend to be ‘sell-the-news’ in crypto,” Henry Elder, head of decentralized finance at Wave Digital Assets, said in an interview. “You are seeing traders get ahead of that, they expect the market to dump, and they are trying to get ahead of the dump.” 

More generally, as masses of Ether are withdrawn — perhaps 1.2 million coins, worth more than $2 billion, will be taken out over the next five days, according to researcher Coin Metrics — many expect the resulting selling pressure will weigh on the price of Ether. That would pressure prices of the derivatives the apps issue and that generally tend to trade at a small discount to Ether.

That said, the amount of Ether locked by users in Lido is up by 1.26% in the last 24 hours, and nearly 20% in the last month, per tracker DeFi Llama. So user funds continue to flock to the app, even if some are dumping its token.

©2023 Bloomberg L.P.