Since the Ethereum Shanghai upgrade, the market has shown a clear preference for liquid staking tokens, with Lido’s stETH emerging as the dominant player. The latest report from Glassnode highlights the growing popularity of liquid staking tokens in the DeFi ecosystem, suggesting that they have become a preferred collateral asset.
Ethereum Market Performance
The introduction of Ethereum’s staking withdrawal functionality in mid-April has sparked a surge in interest in liquid staking tokens.
Among the various providers, Lido has established overwhelming dominance, boasting the highest supply, liquidity, and integration network effects. It has solidified Lido’s position as the market leader in the space.
Interestingly, the surge in staking tokens has not yet translated into significantly increased network activity. Gas prices, which serve as a proxy for blockspace demand, have remained relatively low, indicating that the influx of staked ETH has not led to a spike in transaction volume.
The Shanghai upgrade enabled staked ETH to be withdrawn from the Ethereum consensus mechanism. However, instead of witnessing a wave of withdrawals, the upgrade has motivated a fresh wave of deposits as stakers find confidence in this newfound flexibility.
Deposit activity reached a peak on 2nd June, with over 13,595 new deposits worth over 408k Ethereum.
Lido’s dominance in the liquid staking token sector is evident when compared to its competitors. Its supply is 16 times higher than its nearest rival, and although Rocketpool’s rETH has been growing at a faster rate, Lido maintains a significant lead.
Liquid staking tokens offer integration into DeFi protocols, allowing token holders to trade them on decentralized exchanges, use them as collateral, and take advantage of yield opportunities through lending protocols.
Lido’s stETH has seen increased activity within different DeFi protocols, cementing its position as the most significant player in the sector.
However, interesting trends are developing within the DeFi integration of liquid staking tokens. The stETH-ETH Curve Pool, the largest liquidity pool for Lido’s staking derivative, has experienced a 39% decrease in total value locked since the Shanghai Upgrade.
Similarly, the wstETH-ETH Pool on Balancer has seen a staggering 71% decrease in total value locked since mid-April.
This decline in liquidity can be attributed to various factors, including changing reward structures and increased opportunity costs for liquidity providers. Market makers may be seeing diminished return opportunities, and the retreat of major players due to regulatory scrutiny has likely contributed to the trend.
On the other hand, lending pools such as Aave and Compound have seen significant growth in TVL, especially for liquid staking tokens. Leveraging staked assets against ETH can amplify yield by three times, making them an attractive collateral option.
However, the Ethereum Shanghai upgrade has sparked a surge in interest for liquid staking tokens, with Lido’s stETH leading the way. Investors increasingly utilize these tokens as collateral in lending protocols to maximize staking yields.
This shift in capital allocation within the DeFi sector highlights the growing importance of liquid staking tokens and their integration into various protocols.