The Ethereum liquid staking derivatives finance (LSDFi) ecosystem has witnessed remarkable growth throughout 2023, with Ethereum holders opting to stake rather than liquidate their assets. Despite the introduction of ETH withdrawals enabled by the Ethereum Shapella upgrade in April 2023, LSDFi has seen a staggering 58.7x expansion since the start of the year, according to a report by crypto data aggregator CoinGecko.
By August 2023, LSDFi protocols accounted for 43.7% of the total 26.4 million ETH staked, with Lido emerging as the dominant player, controlling nearly one-third of the staked market. These statistics demonstrate that ETH holders are choosing to re-stake their assets, pursuing better yield opportunities rather than immediately liquidating post-withdrawal.
Remarkably, the exit queue for withdrawals has remained at zero for over half of the time (55%) and stayed below 10 validators for 77% of the time since withdrawals were enabled.
Liquid staking derivatives (LSDs) were introduced to enable smaller ETH holders to participate in staking and unlock liquidity after the launch of the Ethereum Beacon Chain in December 2020. Since the beginning of the year, the total value locked (TVL) across the top 10 LSDFi protocols (excluding Lido) has skyrocketed to over $900 million.
TVL in LSDFi protocols has surged by an astounding 5,870% since January 2023, outperforming the total decentralized finance TVL, which contracted by around 8% over the same period according to DefiLlama.
Ethereum Staking Yields: 4.4% & Declining
The average yield for LSD protocols since January 2022 has been 4.4%, though this figure is expected to decrease as more ETH gets staked. Presently, there are 27.6 million ETH staked, with a total value of approximately $43.4 billion, according to Beaconcha.in.
In recent weeks, Ethereum enthusiasts have closely followed the rise of LSDFi platform Diva, which is seen as conducting a “vampire attack” on Lido by attracting users and liquidity with more attractive incentives. Diva offers token rewards to stakers who lock up their ETH and Lido staked ETH (stETH) for divETH. In October alone, Diva’s TVL has surged by 650% to 15,386 stETH, valued at around $24 million, according to Divascan.
The Ethereum LSDFi ecosystem’s impressive growth is a testament to the resilience of the Ethereum network and the community’s commitment to maximizing the potential of their assets through innovative staking solutions. As the LSDFi sector continues to evolve, it is likely that Ethereum holders will increasingly choose staking over liquidation, further solidifying the role of these protocols in the Ethereum ecosystem.