"There will be a massive dump of staked ETH when the ETH merge happens!" Here's why it won't likely happen

I've seen a lot of post about how there is expected to be a massive ETH dump come the PoW -> PoS merge due to validators now able to withdraw their ETH (since it has been locked up). I'm here to tell you how it likely won't be the case.

Entering Validation

Some information that might help understand is knowing how validators enter for validation on the ETH PoS beaconchain. When one submits sufficient ETH into the deposit contract, they'll enter a queue of a set size. After 4 epochs, they'll be processed and will begin validating and gain rewards. You can see # of pending validators currently directly on the beaconchain site.

Leaving Validation (withdrawing)

^{Note: Withdrawals won't be enabled instantly when merge happens, but some time afterwards. Thanks to comment from /u/sn0w_l30pard}

Now how a validator will exit validation (in other words withdrawal) is very similar. They'll also enter a queue of equal maximum throughput of the queue to enter validation. This means theoretically each exiting validator will be replaced with an entering validator that is in queue to join. ETH that would be withdrawn to be dumped will be offset with ETH that is now in validating.

"What if nobody wants to enter validating but everyone wants to exit?!"

This is a good question! You can enter to become a validator at any time now but can only withdrawal after the merge; there is definitely a case where people are just itching to cash out their validator rewards immediately, BUT there is also reasons after the merge one would want to become a validator as well.

You see as of the time of this post, ETH PoS rewards APR is 5.5% (and even lower if using a service such as Coinbase as they take 25% of that reward as commission; but let me tell you that this APR will jump massively after the merge. Why? Tips (priority fee).

On the current Proof of work chain Ethereum uses, the priority fee (tip) is given to the miner for the given transaction. Come the merge, these tips will now be rewarded to validators. Justin Drake, a Ethereum researcher, predicts APR as high as over 25% post merge. I can see people tripping over themselves to become a validator to get a piece of this cake, as it'll drop slowly over time as more and more validators enter.

Hope this clears some stuff up. thank you for coming to my ted talk

^{Addendum: Justin has an updated model on APR post merge here. It has the APR to be best guess ~13% and lean optimistic 20%}