Why is Lido (LDO) on a Hot Streak?
By admin
While Ethereum is down 0.2% in the past 24 hours and 1.1% in the past week, the ETH liquid staking solution Lido has been enjoying gains of 7.6% and 15.2%, respectively. At the time of writing, LDO has been exchanging hands at $2.19 while recording $104.67 million in 24-hour trading volume, according to CoinGecko.
With a market cap of $1.85 billion, LDO is the 32nd largest cryptocurrency which is up nearly 42% in the past year and 97.3% in 2023 so far. In comparison, ETH’s YTD gains are 51.3%, and it is in the red by 9.4% in the past year.
However, ETH is currently down only 62.64% from its all-time high (ATH) of $4,880 hit in Nov. 2021, while LDO has lost 71% of its value since hitting its peak in Aug. 2021 at $7.30.
Interestingly, LDO is currently outperforming other liquid staking solutions like Rocket Pool (RPL), Frax Share (FXS), and Ankr Network (ANKR). Its biggest competitor RPL is down 6.7% in the past 24 hours and is now trading at just under $50.
However, unlike LDO, RPL hit its ATH last month at $61.90 and has been down less than 20% since then. The $952 million market cap RPL cryptocurrency’s YTD gains are also much higher than LDO at 137%.
But why exactly is LDO rallying now to become one of the biggest performers this week? Let’s look at it, but first, we must understand what LDO is.
LDO is an ERC-20 governance token of Lido which is also used to reward various DAO users and activities such as grants, referral program payouts, liquidity incentives, insurance purchases, and bug bounties.
Click here to learn all about investing in Lido (LDO).
Commanding a Monster ETH Staking Market Share
Lido is a liquid staking solution for not just Ethereum but other proof-of-stake (POS) blockchains as well, such as Solana (SOL) and Polygon (MATIC). The platform is currently offering 6% APR on ETH staking compared to 5.2% on SOL and 4.3% on MATIC deposits.
Lido is able to offer such a high APR due to the compounding of rewards and positive performance of Lido validators. There is a 10% fee involved on staking rewards, though, which is split between node operators and the DAO Treasury.
The platform allows anyone to stake any amount of ETH to get daily rewards as well as grow their balance with DeFi. Users get daily staking rewards and use their stETH (Lido staked Ether) across L2 and the DeFi ecosystem, such as Curve, Yearn, Sushi, 1inch, and more.
As Lido is a leading Ethereum staking pool, its users also benefit from efficient liquidity and pool security.
Currently, just over 6.7 million ETH (worth more than $12 billion) have been staked using Lido, as per the official website. And in return, the platform has paid 311,829 ETH (worth almost $560 million) in rewards. At its peak in early April 2022, $20.4 billion ETH was being staked via Lido.
Lido actually commands almost 74.5% market share of liquid staking derivatives on Ethereum, down from over 90% between May and August 2022, as per data from DeFi Llama. Lido is followed by the leading cryptocurrency exchange Coinbase which has a market share of 12.63% and then Rocket Pool at 7.16%, Frax at 2.15%, and StakeWise at 1% with others such as StakeHound, Ankr, Binance, and Ether.Fi at less than 1%.
Of the total 20 million staked ETH, representing 16.72% of Ethereum supply, Lido accounts for 31.48% of all ETH staked. Lido is in the lead here, too, followed by centralized exchanges (CEXs), Coinbase (11.2%), Binance (5.6%), and Kraken (3.9%).
Meanwhile, staking pool Stakefish also commands a nice share at 5% and liquid staking solution Rocket Pool at 2.9%. Other staking pools, Staked.us, Figment, Bitcoin Suisse, and Kiln, have a market share of 2.8%, 2.6%, 2.2%, and 1.6% ETH staked supply, respectively.
Lido Upgrades to Allow stETH Unstaking
The Lido project was launched in December 2020 when Eth 2.0 (“beacon chain”) first entered Phase 0 and only allowed users to stake on Ethereum 2.0 in multiples of 32 ETH but didn’t allow it to be bridged back to the original Ethereum.
To solve this problem, Lido issued stETH and provided liquidity in exchange for users depositing ETH. This allowed users to earn staking rewards on Eth 2.0 while maintaining liquidity and reducing the 32 ETH requirement to any amount.
Once the beacon chain gets rolled out, users will be able to “unstake” their stETH for the corresponding amount of ETH2 on the beacon chain. And this is exactly what’s happening.
This week, the staking giant upgraded its second version, “V2,” on Ethereum, as a result of which users can now unstake their stETH and receive ETH at a 1:1 ratio.
“Lido V2 introduces two major components, with the most user-facing aspect being Ethereum withdrawals. This allows Ethereum stakers with Lido to directly unstake ETH through the protocol,” the official blog post stated.
Currently, it takes about a day for most validators to exit and withdraw from the staking queue if the exit queue on the Beacon chain is empty—meanwhile, the maximum time for the same stands at just under six days.
Users get to monitor the request status with Lido NFT. The withdrawal request is basically an NFT that is helpful with the awareness of your request status. The way it works is when a user requests to unstake their ETH from Lido, they receive an NFT, which represents their withdrawal request. The NFT is then used to claim the ETH rewards by the user, and then that NFT is subsequently burned.
The NFT can also be listed for trading on popular NFT marketplaces like Opensea and Blu. However, “secondary market activity does not play a role in the withdrawal process,” said Lido marketing lead Kasper Rasmussen.
According to the platform, the new V2 has received a total of nine audits from several firms, such as MixBytes and Statemind. All these audits have been completed except for the one by Oxorio, which will finish by the end of this month.
Lido Users Start Withdrawing ETH
Following last month’s successful Shapella upgrade, liquid staking projects like Lido have taken center stage. Users first began staking their ETH in Dec. 2020 with the launch of Beacon Chain, which marked the Ethereum network’s transition to a proof-of-stake (PoS) consensus algorithm.
Following the success of the Ethereum Shapella upgrade — which was a merge of two key upgrades, Shanghai and Capella, in April this year, stakers were finally able to withdraw their Eth from the mainnet.
While the first week after the upgrade saw a bit of a decline in staked ETH, deposits soon picked up, with decentralized LSD platforms being one of the biggest beneficiaries. In contrast, the share of Coinbase’s staked ETH derivative (cbETH) has fallen.
Now, ever since Lido’s upgrade, about 300,000 ETH has been withdrawn from the protocol, making it the fourth largest entity by ETH withdrawals, trailing crypto exchanges – Kraken, Coinbase, and Binance, as per blockchain analytics firm Nansen.
Over 260 Lido Staked Ether (stETH) was redeemed for its underlying Ether in the first three hours, worth about $500,000, as per data from Parsec Finance.
It all started with embattled crypto lender Celsius wasting no time getting its Ethereum staking tokens out of Lido. On May 15, a transaction was identified on Celsius wallets for 428,015 stETH (worth $781 million at the time of transfer) to the Lido staked Ethereum wallet, which is believed to be in preparation for withdrawal.
While this initial increase in withdrawals on Lido seems concerning, it will likely not last long, much like what Ethereum experienced. With the changes to Lido’s V2, users can now easily enter and exit the protocol and, as a result, has de-risked the ETH staking experience.
Besides the withdrawal feature, another new feature that was introduced to the biggest liquid staking platform is a Staking Router, which will allow the admission of new node operators and, as a result, promotes a diverse and decentralized ecosystem of validators.
The V2 Staking Router uses a new modular architectural design and framework that enables anyone to develop on-ramps for node operators ranging from solo stakers to Distributed Validator Technology (DVT) and Distributed Autonomous Organizations (DAOs).
According to Lido enthusiasts and contributors, this update is the platform’s biggest update yet and marks a step in the right direction toward further decentralization in the crypto industry.
It will not only contribute to an increase in the network’s decentralization but also lead to a more healthy Lido protocol. By enabling the long-awaited ability to stake and unstake at will, this is expected to reinforce “stETH as the most composable and useful asset on Ethereum.”
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