Many blockchain projects have been rumored to future “Ethereum Killers”, projects that would overthrow Ether from its throne, and take its title as the most valuable digital asset. Although it seems that it was an inside job, it seems like it has come. Lido-staked Ethereum, (stETH), and other liquid staking derivatives will make Ether ( ) obsolete as an asset.
Everyday Decentralized Finance (DeFi) users can now benefit from the rewards that were previously reserved only for miners by simply holding stETH and any other ETH liquidstaking derivative. This has sparked a lot of interest from all corners of the industry, including individuals and institutions within centralized finance (CeFi), and DeFi. The ETH liquid staking derivates have attracted a lot of attention in the last month. Coinbase and Frax, two titans of the industry, have published ETH liquid staking derivates.
Liquid staking derivatives provide all the benefits of regular ETH, but also yield generating assets. Holders can gain exposure to ETH’s price action, maintain liquidity, and reap the staking benefits. As staking yields increase, wallets that hold stETH will notice a gradual increase in their holdings.
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Liquid staking derivatives, unlike most staking strategies that require funds to be locked up in a validator allow for users to retain liquidity and still reap the benefits of the staking yield. ETH that has been locked up in staking validations is not available for withdrawal until a future date, most likely after the Shanghai update. Despite trading at a slightly lower price than ETH, stETH is expected to close this gap permanently once withdrawals become possible. Simply put, ETH liquid stake tokens are more efficient than standard Ethereum or other staking methods.
A user’s perspective is that there is no reason to keep regular ETH. The only upside would be an increase of price. However, they could have a liquid staking derivative which would boost their potential profits through staking yield. Similar mentalities have been adopted by project founders. Web3 teams have implemented stETH in their protocols across all types of projects, including DeFi and nonfungible tokens (NFT). Web3 behemoths Curve, Aave, and Aave make it easier for DeFi users integrate stETH in their investment strategies.
stETH is a lending protocol that allows users to increase their yield collateral while avoiding making risky investments. NFT projects can generate revenue from their mint proceeds, rather than being left with a lump sum. ETH liquid staking derivatives make it easier for Web3 project leaders to keep their projects afloat and to keep their community happy.
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ETH liquid staking derivatives are far more efficient than traditional capital, and they help maintain the Ethereum network. stETH, and other derivatives, represent Ether. It has been deposited in an Ethereum validator to provide network security.
The PoS consensus model has been criticized for its centralization of staked ETH. Lido controls over 30% of staked ETH and holds more than 80% market share in liquid staking derivatives. As the market share is spread among different organizations, however, this concern will be dispelled by the new proliferation of alternative options. Users can swap ETH for liquid staking derivatives to support decentralization and also have the option of padding their pockets.
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The benefits of staking are being covered by the media, and liquid staking derivatives will soon be a key part of any DeFi strategy. Coinbase’s “cbETH” means that even retail investors will be familiar with this strategy. As users flock to the virtually free yield, we’re likely to see a sharp uptake in liquid staking derivatives protocols. Many DeFi users will soon only have enough ETH to pay their gas costs.
Liquid staking derivatives are expected to increase the amount of ETH deposited in various validator systems. This will improve network security and provide financial benefits to supporters. The days of ETH are over. Any ETH that is not converted into a liquid staking derivative of Ethereum will be considered money. Although it appears that the long-awaited ETH killer has finally arrived, it seems like it will only increase Ethereum’s security as well as its supporters’ wallets.
Sam Forman founded Sturdy, which is a DeFi lending protocol. After studying mathematics and computer science at Stanford, he became passionate about cryptography while in high school. Sam enjoys Brazilian Jiu Jitsu and supporting the New York Giants when he isn’t working on Sturdy.
This article is intended for informational purposes only and should not be construed as investment or legal advice. These views, thoughts and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
