To set the context, the Pre-Merge Proof-of-Work Ethereum network was previously made of only 1 layer. After the Merge, it’s now composed of 2 layers: the Execution Layer (EL) and the Consensus Layer (CL). 

• Execution Layer: Where smart contracts live and also where everyday users interact with decentralized applications (dApps) and perform everyday transactions. 
• Consensus Layer: Where the network is secured and where validators(stakers) are operating on. Remember that a validator is a network participant running a software with a locked stake that acts as collateral and adds blocks to a PoS Blockchain.

Both of these 2 upgrades are necessary to make unstaking possible on Ethereum. The Shanghai upgrade is specific to the Execution Layer (EL) while the Capella upgrade is specific to the Consensus Layer (CL). 

Partial unstaking occurs automatically when a validator’s balance exceeds 32 ETH. The excess amounts are consensus layer rewards (CL). Any excess amounts will not earn additional rewards (does not compound) and aren’t staked.

The excess ETH is automatically sent to a validator’s address. In terms of an analogy, the water overflowing from a full glass would be the excess ETH rewards and the existing water in the full glass would be the 32 staked ETH. Aside from ETH rewards being available automatically, partial withdrawal amounts cannot be specified on a validator level. 

Full unstaking involves a validator exiting the active validator set and having its unstaked ETH sent by the network to a specified address. Once out of the active validator set, the initial stake plus the accrued rewards are sent to the validator’s address. This is why partial unstaking isn’t possible due to the validator having to exit the active set.

The network will check one of the following two criterias:

• Validator who has the exit active validator set
• Validator balance is over 32 ETH

The validator withdrawal is processed and added to the current network block. Next, the ETH is sent to the validator’s withdrawal address.

As long as a validator remains in the active set and doesn’t request an exit, the validator will continue accruing rewards. Only excess amounts over 32 ETH will be automatically available and sent to the specified address.

Exiting the active set requires a validator to submit this request. This request cannot be undone. Once out of the active set, unstaking of the original stake plus rewards is automatically processed and sent to the withdrawal address. Validators out of the active set don’t earn rewards.

Exiting the validator set is a prerequisite for full unstaking and validators must submit an exit request to the network. The timing to process the exit request depends on whether there are other validators waiting to exit. 

If there are no other validators, then it would take around 4 epochs to exit if there are no other validators.1 epoch = 32 blocks. 4 epochs = ~25 min

If there are other validators waiting to exit, then the validator joins the exit queue. Currently, only a max of 7 validators can exit per epoch (1575 validators/day). Once exited, there’s an additional 256 epoch (~27 hrs) cooldown/lock up period before the validator can be unstaked. If there are 100 000 validators requesting exit, it could take ~63 days for all 100 000 validators in the queue to exit.

A validator must first have exited the active set before it can unstake. At this state, 16 requests can be included per block and the average block time is 12.1 seconds. The core Ethereum community set the 16 requests limit per block. The Ethereum Foundation provided the following estimates based on the number of requests.

From the start of the active set exit to the unstaking request processing, it would take a minimum of 1 day to complete the entire process assuming there is no queue exiting the active set and the unstaked ETH is picked up immediately by the network to send to the address. The timing for unstaking requests to be picked by the network is random and the size of the exit queue and the number of unstaking requests will impact the overall processing timing. This is why the unstaking process timeline can vary between weeks to months depending on factors described earlier.