In contrast with the stagnation of BTC and ETH, the governance tokens of liquidity-staking platforms are surging. With these platforms, users can maintain the liquidity of their tokens even while locked in the blockchain.
LDO, the governance token of the decentralized autonomous organization (DAO) Lido, gained 19% over the past 7 days, with the price hitting a 1.5-month high of $1.30 early on Tuesday, according to the Coinecko data.
The SWISE token of liquidity staking protocol StakeWise also jumped more than 70% in a week, while Rocket Pool’s RPL increased by nearly 10%.
The rally came after Ethereum developers announced on December 8 that the network’s next hard fork or backward-incompatible upgrade would take place in March. This upgrade is called Shanghai, including code to allow withdrawal of ETH staked in Beacon Chain as of December 2020. Finally, the participants have also determined a timeline for getting their ETH back.
Staking is understood as locking coins in a cryptocurrency wallet to support the operation of the blockchain and in exchange for rewards. The process is similar to investing in fixed-income securities, such as bonds.
However, staking can bind assets for a long time. Liquidity staking protocols eliminate opportunity costs by issuing derivative tokens that represent locked coins and earned rewards. These derivative tokens can be used elsewhere to generate additional profits.
At the time of writing, ETH staked through liquidity staking protocols accounts for more than 40% of all ETH deposits (over 15.7 million), according to data from Dune Analytics. That explains the aggressive price action of liquidity staking governance tokens prior to the Shanghai upgrade.
According to Messari, ETH has a staking ratio of 14%, the lowest among layer 1 coins. Therefore, there is a lot of opportunity to increase the ETH staking ratio (the amount of ETH staked relative to the total supply of this cryptocurrency. ) and acceptance of liquidity staking protocols.
As pointed out by David Alexander of Binance Labs, activity in liquidity staking protocols has increased over the past few weeks.
According to data source Defi Llama, with a TVL at $5.9 billion, Lido has trailed MakerDAO and AAVE to become the world’s biggest DeFi protocol.
Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision.
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