A new report from Glassnode is the latest example of Web3 researchers sounding the alarm as Lido increasingly dominates the supply of staked Ethereum.
According to Glassnode, Lido’s liquid staking derivative stETH is enjoying increasing demand at the expense of ETH, which is stagnating in comparison. According to the report, 7% of Ether supply has been converted into stETH, with this trend showing no signs of slowing down. In total, 16% of the ETH supply is staked.
Composition of the ETH supply
“The rise of liquid staking has changed the composition of Ethereum supply and the dynamics of ETH issuance, with a notable Lido presence driving these dynamics,” Glassnode said. “stETH has replaced ETH as the preferred asset on lending platforms. This shift is primarily driven by the attractiveness of leveraged stETH positions.”
Glassnode said strategies that provide leveraged exposure to staked Ether offer higher returns than those possible when providing stETH/ETH liquidity on decentralized exchanges.
Ethereum researchers have been sounding the alarm over Lido’s increasing dominance over the past two years. Analysts warned that Lido’s increasing control over the supply of staked Ether could threaten the decentralization of Ethereum’s consensus layer. The project already controls 32% of the Ether staked.
But experts bet Lido’s dominance won’t be waning anytime soon. stETH appeals to Web3 beginners as a simple vehicle for accessing stake exposure, while third-party DeFi protocols use the token as a “money Lego” to enable advanced DeFi trading strategies.
With Lido Treasury receiving 1.6% of staking rewards, the numbers suggest that Lido Treasury is currently accumulating 0.5% of all new Ether coming into supply as staking rewards.
Money Legos
An emerging group of innovative DeFi protocols are using stETH and other liquid staking derivatives to enable leveraged exposure to ETH stake rewards.
Gearbox Protocol was an early pioneer, with stETH among its flagship leveraged yield farming products since its launch in version 2 last year. On October 4, Contango began offering futures contracts backed by recursive stETH lending positions using the Money Market Protocol, demonstrating the increasing sophistication and sophistication of stETH-based DeFi products.
“The goal of staking is not to promote DeFi, but to promote the security and health of the Ethereum network,” commented Superphiz, co-founder of the EthStaker community, last year. “You have to keep these two goals separate.”
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