There has been a great deal of momentum for liquid staking derivatives and platforms in the run-up to Ethereum’s next big upgrade.
Crypto’s newest narrative is liquid staking, as platforms and tokens have been taking off recently.
Ethereum will go through the Shanghai upgrade in March, which releases ETH staked on the Beacon Chain. Industry analysts believe this will be good news for liquid staking protocols as they offer better incentives and yields. As opposed to direct staking, they provide a more flexible way to stake and earn without having to lock up the collateral.
On Jan. 10, “Viktor DeFi” told his 13,000 followers:
“Liquid Staking Derivatives (LSD) is blowing up with the upcoming Ethereum’s Shanghai Upgrade.”
Crypto Narratives Alpha Series 💎 01— Viktor DeFi 🛡🦇🔊 (@ViktorDefi) January 9, 2023
Liquid Staking Derivatives (LSD) is blowing up with the upcoming Ethereum's Shanghai Upgrade.
I spent 1,439 minutes exploring the LSD narrative, so you don't have to.
Liquid Staking Surging
“Accessibility, immovability, and illiquidity are the top drawbacks of crypto staking,” the analyst added. Liquid staking platforms provide a staking token that can also be used in other DeFi protocols to generate additional yields.
Lido is the industry’s leading staking platform, with 4.8 million ETH staked, representing 30% of the total amount.
Its governance token, LDO, has been on fire in recent weeks, gaining a whopping 57% over the past seven days. Other staking platform tokens, such as StakeWise (SWISE), have also performed well.
The amount staked on platforms such as Lido, Rocket Pool, StakeWise, and Frax has also been steadily increasing as this new narrative gains momentum.
Unlike Lido, Rocket Pool is permissionless and highly decentralized leading analysis to predict that it could become a market leader.
On the flip side, there are a couple of risks to liquid staking pools, such as smart contract risk, de-peg risk (which happened to Lido’s stETH last year), and slashing risk.
However, with staked ETH about to be slowly released, a lot of it may be moved to more lucrative liquid staking platforms this year. Not all of the staked ETH will be available at once, as current specifications allow a maximum of 57,600 partial withdrawals per day, according to CoinMetrics.
Ethereum Price Outlook
Ethereum has not performed as well as liquid staking tokens with a gain of just 10% since the beginning of the year.
ETH prices are currently up 1% on the day at $1,323 at the time of writing, according to CoinGecko. The asset has been slow to move out of the shadow of its big brother and remains down 73% from its November 2021 all-time high.