Liquid Staking (LSD) Tops DeFi Market, ETH Staking Demand Increases

Breakthrough in liquid staking

The DeFi (decentralized finance) market landscape is changing. As of the 2nd, in the ranking of total asset value (TVL) locked up by category, liquid staking (LSD) is the top, ahead of DEX (distributed exchange) and lending (loan).

For the first time, the Liquid Staking category has surpassed DEXes in total value locked, making it the leading category in DeFi by TVL dominance pic.twitter.com/HQ0Ug8UweR

—DefiLlama.com (@DefiLlama) April 26, 2023

Liquid staking (LSD) is a mechanism that allows you to receive derivative tokens (LSD) issued 1:1 through a smart contract and operate in DeFi while receiving cryptocurrency staking rewards. LSD has been adopted in blockchains that employ PoS (Proof of Stake), but it is especially developing on Ethereum.

TVL in the LSD category increased by ¥38 billion ($280 million) from April 13 to May 1 to reach ¥2.4 trillion ($17.4 billion). The total TVL of decentralized exchanges (DEXs), which ranks second in the category in the TVL ranking, decreased by ¥228 billion ($1.66 billion) during the same period and is now ¥236 billion ($17.18 billion). Total TVL for the third largest lending category has moved from $15 billion on April 13 to $14 billion today.

It is speculated that the increase in TVL was due to the crypto asset (virtual currency) Ethereum (ETH), which was withdrawn after the Shanghai upgrade, was re-staked on the LSD protocol.

According to Token.Unlocks, 1.97 million ETH was withdrawn after the Shanghai upgrade, which took place at 7:00 on April 13, Japan time, but 1.58 million ETH was newly staked. Beginning with the impact of the suspension of staking services on the US Kraken Exchange, users seeking higher yields are thought to have switched to LSD.

According to DefiLlama May 2nd data, major LSD protocols have seen the following changes in TVL over the past month:

Lido, which has the top share in LSD, is the sole leader in the DeFi market in terms of TVL, ahead of the stablecoin Maker Protocol and the lending protocol Aave. Rocket Pool adopts a more decentralized scheme than Lido in that anyone can become a node operator, and TVL has surged in 2023. Frax Ether adds protocol rewards earned on Curve (CRV), the main DEX of stablecoins, and Convex (CVX), which is optimized for earning interest on Curve, to the interest rate.

connection:Explaining “LSD (Liquid Staking Derivatives)” that enables operation while staking Ethereum

ETH Staking Outlook

The staking rate of the cryptocurrency Ethereum (ETH) supply is 14.8%, which is lower than other L1 chains. However, the LSD category offers returns around 4.8% APR, making it an attractive option for investors.

13/ ETH staking with just 83 protocols is about to flip DEXes by TVL.

With just 15% of all ETH staked, the LSD industry is larger than lending, bridging, and CDP stablecoins.

It will continue to grow. pic.twitter.com/lJ5Hf5JzH3

— Ignas | DeFi Research (@DefiIgnas) April 25, 2023

Liquid staking (LSD) is becoming more and more important in the Ethereum ecosystem. It offers an attractive risk/return balance for investors seeking financial freedom, while contributing to the decentralization and overall health of the network.

Considering that the Shanghai upgrade added withdrawal functionality, it is expected that more ETH will be staked on LSD.

connection:What is the ETH “Shanghai” upgrade?Summary of each company’s view on staking cancellation and ETH selling pressure

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