• Ethereum Shapella recently unlocked new opportunities for liquid staking derivatives/tokens (LSDs).
• LSDs have become the largest collateral asset on leading protocols such as Aave [AAVE].
• The growth of LSDs and ETH staking has been driven by two key upgrades – The Merge and Shapella.
Ethereum’s Shapella Unlocking New Opportunities
Recent analysis revealed an intriguing trend occurring as a result of the Shapella: the growth of liquid staking derivatives/tokens (LSDs). Liquid staking protocols extended their dominance after Shapella and outperformed other staking options like centralized exchanges (CEX) and staking pools. This confidence led them to restake their ETH after an initial burst of withdrawals, resulting in the highest monthly net inflow of ETH for May.
Liquid Staking Derivatives On The Rise
Data from Dune showed that the contribution of CEXs to ETH staking declined from 27% to 20% since Shapella, allowing LSDs to replace ETH as the prime collateral in several DeFi protocols. Notably, LSDs beat ETH to become the largest collateral asset on leading protocol Aave [AAVE].
Advantages Of Liquid Staking Derivatives
Liquid Staking Derivatives offer users several advantages over traditional staking methods. They allow users to directly participate in staking while also maintaining the ability to use them elsewhere in decentralized finance (DeFi) for higher yield opportunities. The most popular LSD in use is Lido Staked Ether [stETH].
Potential Impact On Ethereum
The growth of these derivative tokens could potentially have a negative impact on Ethereum, as it may lead people away from using its native tokens. It remains unclear what implications this could have on Ethereum’s long-term value proposition.
The recent uptake of liquidity-based derivatives is changing the landscape of crypto markets and unlocking new doors of opportunities for investors. While it is still early days, it will be interesting to see how this trend develops over time and what impact it has on Ethereum’s overall value proposition.