Ethereum’s transition to a proof-of-stake consensus mechanism has led to the rise of liquid staking platforms, where users can earn a yield by delegating their ether (ETH) to a validator and receiving a tradable token in return.
Forbes reported on January 21st that two of the biggest players in the space, Lido and Rocket Pool, have seen significant growth in recent months, with Lido’s native token, LDO, surging 115% and Rocket Pool’s token, RPL, rising 80% year-to-date.
The largest centralized exchange, Coinbase, has also entered the liquid staking space, quickly rising to claim “second place” with its staking service and related token, cbETH.
According to Dune Analytics, Lido and Rocket Pool currently dominate the market with 76% and 3.5% of the total ETH deposited on their respective platforms, but Coinbase has made a significant impact in the space, amassing a 17% share in a short period of time.
Since the launch of Ethereum’s beacon chain in December 2020, which marked the beginning of the network’s shift to proof-of-stake, those who participate in staking have been able to earn compensation in the form of block rewards, tips, and minimum extractable value (MEV) in the form of ETH.
However, stakers were not able to withdraw their assets until the Shanghai upgrade, expected to take place in March of this year. Liquid staking providers issue derivative tokens that are backed one-to-one by the assets staked on the platform, providing users with liquidity on their underlying staking positions.
The amount of ETH staked in pools has ballooned 2,470% from 265,000 ETH in early 2021 to over 6.8 million ETH now. It is worth noting that the price of ETH and its derivative liquid staking tokens have consistently diverged, with the staking tokens often trading at a slight discount.
This is due to several reasons, such as users selling their staking tokens to buy more ETH or the risk of further delays in withdrawals.
Simplifying Ethereum Staking: Centralized & Decentralized Providers On the Rise
The report also highlighted that in recent times, both centralized and decentralized staking providers have been on the rise as they simplify the staking process and lower the barrier of entry for everyday users.
Platforms such as Lido, Rocket Pool, and Stakewise have formed DAOs to handle governance and reward stakeholders. These platforms use their native tokens to compensate node operators, provide oracle pricing data, and vote on protocol upgrades.
One major player in the staking game is Coinbase, which recently announced its intention to join Rocket Pool’s Oracle DAO. As a member, Coinbase will be responsible for providing real-time ETH pricing data, running Rocket Pool nodes, and voting on protocol upgrades. In return, Coinbase will receive RPL tokens as compensation.
Moreover, Alluvial, a liquid collective, aims to tap into the institutional market by forming a consortium of centralized staking providers, including Coinbase, Figment, and Kraken. The collective aims to provide an enterprise-grade multi-chain liquid staking protocol, initially targeting institutional investors.
However, Lido’s high percentage of the total validator set raises concerns about centralization risk and censorship at the protocol level. Additionally, the Shanghai upgrade’s enabling of withdrawals may lead to more supply coming into the market and additional sell pressure.
Despite the potential challenges, the current staking ratio of Ethereum, which stands at around 14%, compared to the likes of Solana, Cardano, and BNB, which have ratios of 71%, 72%, and 97%, respectively, indicates that there is still opportunity for more ETH holders to join in and secure a bigger portion of the supply through staking.
However, with a wide margin for expansion, the staking scene for Ethereum is poised for an exhilarating journey ahead.