The Ultimate Guide to Ethereum Liquid
Staking in 2023. ETH Liquid Staking,
Lido Staking, Liquid Staking Derivatives. So many buzzwords. So little time. So let's dive into
what is Ethereum liquid staking. First, we have. To understand the issue. With staking on. Ethereum
after the merge last September. Staking on. Ethereum now generates. Real yield as validators
stake 32 ETH to secure the. Network
and also earn rewards in the process. However this 32 ETH is locked up,
at least for now, as a capital efficient. Degen, that doesn't sound good. Enter
liquid Staking. For those too lazy to check the. Glossary, it refers to unlocking
your staked ETH via derivatives. So you can reinvested. Elsewhere. What is eth liquid. Staking derivatives or LSD? No, we're not talking about that LSD
in explaining like I'm five terms, It simply means you get a new token
that's worth the same as the staked Eth And you can use it to ape into a new yield
farm or protocol. Liquid staking does away.
With the main downside of staking. You can now. Access your capital. And utilize it more. Efficiently. The most popular LSD on. The market. Right now is Lido staking ETH
or stETH with over 7.7 billion. Dollars worth of ETH. Staked and over 260,000 stakers. Why is liquid staking important? As a novice DeFi degen, you may wonder
what is the main benefit of. Liquid staking?
It's called rehypothecation. Re What? In ape Terms, rehypothecation is using assets
pledged as collateral in several places.
So for instance,
if you use your home to. Secure a car. Loan. And a loan for another. House,
that would be rehypothecating your house. Liquid staking ETH allows staking ETH to. Secure Ethereum. Loan 1 and then you use the same staked.
Ether as. Collateral called. Staked ether to. Stake and secure, say. A DeFi loan Or loan 2. But why would you Stake Eth
in the first place? Well, because not doing it
means you're losing out on staking yield. Like any other proof of stake, protocol
staking yields are an implicit. Tax on. Non-stakers. If you don't want to. Secure
the protocol. Fine. Then don't complain
when others get paid yield for doing so. The following Messari. Chart
comparing the share of. Staked ETH to other blockchains. Has been making the rounds on Twitter. Ethereum staking ratio is lower
because a) there is more economic Utility to ETH and b)
You can't unstake it yet. But the latter is about. The change. Blockchain researcher. Hasu and Paradigm
CTO estimated that 15 to 30% of ETH May be staked without liquid staking,
but with liquid staking this. Number may surge to 80% or more. An added
benefit would be an increased economic. Security of Ethereum. The more ETH staked, the more staked Eth
the derivative. And attacker has. To acquire, the more additional steps. There are, the more. Difficult it becomes. So you can think of liquid staking. Protocols offering the service.
As banks. For staked collateral. Some providers are centralized,
while others are decentralized. And even Metamask. Has jumped on the liquid
staking hype train and. Offers an. Integration with staking providers
from its down and hype. Train is definitely. Not an exaggeration. Just look at the token prices
of some staking. Providers. Over the last month. Liquid staking
is becoming a dominant narrative Now because of the up and coming. Ethereum Shanghai upgrade. But what is the Ethereum Shanghai upgrade? The Ethereum Shanghai upgrade
will allow users to on stake there, And since Ethereum switched
to proof of stake, staked ETH was stuck. Unless you used a. Liquid
staking. Provider, this upgrade will. Finally enable. Withdrawals from Ethereum and also bring. Down the on staking time to 27. Hours. Here's a timeline for the Shanghai
upgrade. Here's some. Interesting data from the ETH
Beacon chain Dune. Dashboard. And all data is. As of January 19th, 2023 13.3%. Of ETH Staked.
The liquid staking. Market share is 32.96% 29.12% is staked through Lido. Around 65% of staked ETH is. Underwater. Why is this so important? Because some fear
the Shanghai upgrade could lead. To selling. Pressure. However, a couple of arguments
indicate the contrary. We can't reliably predict. What share of ETH is underwater
or in the. Money will. Prefer to take profits or cut. Losses.
The upgrade will enable full withdrawals,
but only six validators can exit Per epic and epic is 6.4 minutes
for Ethereum. Consequently, only 1350
validators can exit daily, so 43. 200 Eth a day. And that amounts. To only 0.8 % of daily ether. Trading volume
and also should be easily absorbed. By the market. Partial withdrawal will be able
to withdraw the excess to ease. And rewards
each validator has staked on average. Multiplied by a bit more. Than 500,000. Validators. That amounts to roughly one. Million
ETH. Hitting the market and. That is still only 10% of Eth Daily
trading volume. Even before we consider
that these stakers. Are likely
to retake much of their. Balance. So. TLDR sustained selling pressure on ETH
may be unlikely. What to consider when choosing. A. Liquid staking provider. So you could of course stake ETH yourself. The downside is that that will cost
you 30 Eth which is the minimum. Amount to run a node. And you won't be able to re hypothecated
your staked. Even after the Shanghai upgrade. Lucky for you, there are a plethora of. Centralized and decentralized.
Staking providers. Data from Dune indicates
that 33% Of all ETH is staked with. Decentralized providers, compared. To 20. % and centralized exchanges. Kaleido has a controlling 87. Point 5% market.
Share among those decentralized. Providers,
and on. The other hand, Coinbase, Kraken. And Binance's
hold significant shares of all staked.
@bluecollarchain put together
an excellent list of important. Factors
to consider for liquid staking providers. Tokenomics is the yield from your. Liquid staking. Provider
real yield in ETH or inflated with. The provider's
native token protocol revenue. Model Does The staking service provide products
other than just liquid Staking so i.e. Greater utility current and fully. Diluted market cap How is the. Token doing now and how much
more inflation is there to come? Smart contract risk. Are there. Contracts, audits, bug. Bounty programs? And does the team have. A history depeg risk.How much runway
or Treasury does the service have? Frequency and type of taxable events. What type of reward does the service use? And are you subject to capital. Gains or income tax. Tokens
that are useful? Beyond being purely liquid,
staking derivatives. Will probably do. Better. In the long. Run. Reward mechanisms of liquid
staking tokens. Before diving.
Into the protocol comparison. You should know about the three types. Of reward mechanisms. Rebasing tokens
increase in amount. With the yield,
you get one stake ETH for one ETH. As your balance of ETH increases, So does your balance of staked ETH value
accruing tokens increase in their price. With the yield you get one staked ETH. For one. ETH as your balance of ETH increases your
balance of state, ETH remains the same But also. Increases in value.
The two tokens system keeps the principle
the same. You get one stake ETH for one ETH
your staking. Rewards are. Paid out in a separate. Reward. Token. The reward
token has the same price as ETH. So what. 1% would result in 0.01 reward. Tokens? So next up, let's go. Into the Ethereum
liquid staking. Provider's comparison. Lido ETH. Staking. Reward type. Value accruing token. StETH revenue model. 15% pay to pull. Validators
exclusively a. Staking. Service. But across several. Blockchains
like Polygon Solana, Polkadot and Kusama. Staking EPR. 4.86%. Real yield paid in stETH. Tokenomics 96% of tokens
unlocked market cap in fully diluted value 331 million to 612
million risk audits done at $312 million. Treasury staking fee
not redistributed to Stakers. Via the native token. LDO is the clear market leader among. Decentralized staking pools. It has a. High percentage. Of tokens unlocked and also. Provides. Staking services across different.
Blockchains. Coinbase ETH Staking reward type. Value occurring token cbETH Fee
25% Staking. APR 3.89% Risk. Centralization. Coinbase offers convenient Two clicks staking within its centralized
exchange product. Despite the custodial
risk, Coinbase may grow its share. Thanks to its network effects.
Binance's ETH staking rewards
type value coin token or cbETH and fee. Is 5%. Staking APR a 5% market cap
and fully delivered value 46 billion into 58 billion. Risk. Centralization. Binance offers. Staking as one of its many products
on the exchange. Compared to other centralized exchanges. Binance stands outout
with a slightly higher. 5% stake in APR and. Also lower 5% fee Kraken ETH
staking reward type. Value accruing token ETH2.S. 15%. Staking APR 4% risk. Centralization. Kraken is another centralized
staking. Provider that offers. Convenient access to its. Users,
and also the 15%. Fee charge sits. In the middle
between. Binance and Coinbase. Rocketpool ETH Staking reward type. Value coin token or. RETH revenue model. 15% 70% to. Node operators, 15% to Oracle DAO
members and 15% to Treasury. Staking APR 4.2 to 7.3%,
depending on the position size And also matching or POS stake. Tokenomics 5% inflation per annum market
cap in fully diluted value. 330. 1 million to 612 million risk. No revenue sharing revenue is generated. Via token inflation. RPL is the second biggest. Decentralized. Staking providers and. Something that it could actually
overtake Lido in the. Long run. But for now, Rocketpool
has some bullish short term catalysts. And next up is. Frax ETH staking. Reward type two. Token model revenue model 10% 90% to
sfrxETH holders, 8% to veFXS holders, 2%
To insurance fund. Several different products. Like Frax Staking APR is six. Point 7%. Non-Native yield staking APR is six. Point 7%. Tokenomics 35%. Team share 60%. Farming
rewards in 5%. Treasury Market cap. In fully diluted value 671,000,924. Million Risks Check. Audits. Frax FSS is tipped to be one of the. Hottest. Protocols to challenge
the existing market. Leaders. Its share of the liquid. Staking market has been growing. Rapidly thanks to a cleverly. Designed incentive mechanism. That generates a. High APR paid out
partially in its native token. Frax also earns fees from.
The curve protocol that. Benefiting FSS. Holders and also stakers. Next up,
we have Ankr ETH staking reward type. Value coin token or aETHb revenue. Model 10% of. Validator node DeFi product
suite staking APR At three. Point 9% tokenomics cap supply
according to its tokenomics Market cap and fully diluted
value 216 million in 224. Million risks. Audit Ankr provides. Liquid staking among several. Other
DeFi services. Its token supply is almost. Fully unlocked. But it has performed worse than. Some of its biggest. Competitors. Stakewise. ETH staking. Reward type two. Token model Revenue model 10%.
Staking APR six. .21 percent market cap. In FDV volume 25 million in 100. And 43 million risks 1.33. Million Treasury
high. Outstanding token emissions. Stakewise or. SWISE is another smaller.
Staking. Provider. It suffers from rather high. Outstanding token. Emissions,
although the token. Has performed quite well so. Far. Stader eth. Staking reward type. Value coin token ETHx Revenue model 10% 10% DeFi management
fee multi-chain staking. Services APR to. Be announced
tokenomics the distribution in the light. Paper market. Cap and fully delivered
value 800 million and 123 million risks. Astronomical FDV compared. To market cap high outstanding token
emissions. Stater SD is about to launch its ETH
staking product and it already Has a DeFi Product suite
and also multi-chain staking. Services, but suffers. From a massive outstanding token
each staking redacted is another wild. Card DeFi protocol. About to launch liquid staking. It is tipped to become a. Strong
contender to. More established protocols. On. Ethereum staked or. To over collateralize a new stablecoin
DINERO Which will be usable. As collateral across the DeFi landscape. ETH liquid. Staking strategies. There are three essential. Strategies to compound your yield
from ether liquid staking.
The Stablecoin strategy involves swapping. The derivative token for stablecoins. On a money. Market protocol and. Providing liquidity with the stablecoins. The strategy is safe
as long as you monitor. Your. Collateralization level. A risk. Your strategy involves Providing the derivative token
as liquidity on an applicable protocol. This strategy incurs higher yield,
but carries. The currency risk of. Remaining in. The risky strategy
as providing liquidity to an. ETH protocol token pool. So for instance. For LIDO this would mean providing
liquidity to the wstETH/LDO pool. So to do this you would have to. Acquire the Native Protocol token, which. Will always be more. Volatile than. If the liquid staking
narrative is already going strong. But that does not mean
that. You are necessarily. Late. Ethereum upgrades
and scaling will be one of the main. Narratives. In 20. 23. Another intriguing project on the horizon
is Eigenlayer, which. Will allow users to validate
and stake their liquidity, staked ETH and. Other protocols,
thus earning from yield from two sources. But the good news is
that decentralized pools are likely to. Win over centralized. Pools
since they are. More. Aligned with the Ethereum community
and can compete with additional Yield opportunities.