Unlock the Full Power of the Liquid Staking Narrative
|By Marija Matic|
You’ve heard talking heads and even our own Weiss Crypto analysts talk about the power of crypto narratives.
And they are powerful, indeed. These sizzling hot stories, concepts and convictions are like magnetic forces steering the crypto ship. They sculpt how people view, understand and assess cryptos, as well as groundbreaking dApps and their varied use cases.
In short, narratives have the power to sway investor sentiment, nudge the market dynamics and dictate the pace of adoption.
Remember when we saw a slew of centralized exchanges experience black swan events last year?
Well, the narrative outside crypto spaces was that crypto was a dangerous, lawless financial frontier that investors should stay away from.
Within the crypto sphere, the story was slightly different. The theme that rose to prominence was that centralized exchanges’ exposure to bad actors proved the truism “not your keys, not your crypto.”
Notice the difference? That’s why it’s vital to critically evaluate the narrative you’re hearing, as the tale being told may not be the full truth. Worse, it could be intentionally misleading or harmful.
And that’s precisely what I did regarding narratives that have shaped 2023. The year ushered in some strong narratives in the crypto space, including:
- The rise of Layer-2 solutions (rollups).
- The rise of artificial intelligence.
- The tokenization of real-world assets.
- The growth of “Chinese coins” due to opening of Hong Kong to Chinese crypto investors.
- The birth of innovative decentralized stablecoins.
- The ever-present pursuit of blockchain interoperability.
- The groundbreaking integration of NFTs into the Bitcoin network.
Some have had a greater impact on the market than others, but all have had a hand in impacting the market at some point over the past eight months.
I did leave out one from the list above. And that’s because while it may not sound as sexy as the above, my deep dive tells me that this narrative has real staying power and massive growth potential as we move out of 2023 and into 2024.
Liquid staking has been the shining star of the crypto universe throughout 2023.
The catalyst for its meteoric rise? How easy and accessible it has made staking Ethereum (ETH, “B”). See, there are complex technical intricacies surrounding direct ETH staking, and that’s saying nothing of the daunting 32 ETH minimum requirement to stake. That’s a hefty investment of over $50,000 at the time of writing that leaves you marooned in illiquidity, as with traditional ETH staking, your ETH gets locked up.
But liquid staking platforms came to the rescue. And in so doing, captured the spotlight. In a nutshell, they give your staked tokens some wiggle room, making it a breeze to take part in crypto governance and security while earning automatic rewards and still having liquidity in your wallet.
For each ETH you stake, you basically get an IOU token — called a liquid staking token or LST — pegged to the value of that ETH, with your ETH staking rewards being applied to your stETH token balance once every day. An entire new sector of DeFi is being developed that will support LSTs called LSDeFi.
The best part? No more worrying about minimum staking amounts. With liquid staking, you can stake as much or as little ETH as you want.
The platform leading the charge is Lido DAO (LDO, Not Yet Rated), the go-to solution for liquid staking. It allows you to stake your Ethereum for a roughly 3.8% annual percentage yield at the time of writing.
So far, Lido has attracted a staggering 8.53 million ETH from 178,000 depositors. And those numbers are climbing. With $14.17 billion staked and $676 million in rewards paid out to nearly 290,000 stakers, Lido is where it's happening.
How to Stake on Lido
Here's the easy, three-step process for staking with Lido and most other liquid staking platforms:
- Connect your wallet to stake any amount of your tokens to start earning daily staking rewards.
- Get your hands on liquid LSTs and watch your rewards roll in real time.
- Put your LSTs to work in DeFi to supercharge your daily staking rewards.
So far, about 120 DeFi platforms are eager to accept your LSTs. Aave (AAVE, “B-”), for example, lets you use them for borrowing, while on Balancer (BAL, Not Yet Rated), you can use them for liquidity mining, and Uniswap (UNI, “B-”) supports them for swapping and providing liquidity. And all the while, you keep raking in those staking rewards from Lido.
As liquid staking continues to grow, the number of platforms that support LSTs will grow in step.
One up-and-coming platform to watch in this evolving story is Pendle (PENDLE, Not Yet Rated). This trailblazer is an extension of liquid staking platforms focused on "unlocking the yield." It stands out with its yield tokenization and its automated market making system for yield trading, as it offers a variety of additional ways to boost your LST yields.
You read that right — Pendle offers a stable 5.37% yield for your staked stETH (Lido’s LST) on top of the yield you can earn on your ETH. It's perfect for those who want stability without lockup periods for additional yield.
Currently, they're sitting on $136 million locked in Ethereum, Arbitrum (ARB, Not Yet Rated) and Binance (BNB, “C-”) chain contracts.
In this exciting new world of LSDeFi, staking is no longer about locking your assets away. It's all about unleashing their potential.
No wonder that this narrative is here to stay.
I suggest you do your research on how you want to dive into this exciting new corner of the crypto world now, while things are relatively quiet. Otherwise, you may find yourself racing to catch up if another narrative comes along and boosts liquid staking even higher.