What makes Lido a top ETH staking protocol?

Lido is a platform built on the Ethereum 2.0 Beacon Chain. Users can obtain staking rewards without locking up ETH and obtain Token stETH at a 1:1 ratio to participate in other services in the DeFi market.

In just 3 months, Lido hit a record high with a TVL of US$13.98 billion, surpassing AAVE and Convex Finance protocols to rank third among DeFi projects.

Let’s analyze whether Lido, with its fast-growing TVL, is a platform worth using?

Lido supports multiple mainstream public chains and has innovative Tokenomics

Lido provides staking pool services for POS (Proof of Stake) public chains, and currently supports Ethereum 2.0, Terra, Solana and Kusama. According to Footprint Analytics, as of March 1, Lido's TVL reached a record high of $13.98 billion, of which Terra accounted for the largest proportion (56%), followed by Ethereum (41%), and other public chains accounted for a small proportion.

Footprint Analytics - TVL of Lido

By supporting these four public chains, Lido can integrate many head protocols and issue corresponding public chain Token derivatives to provide liquidity for the assets of equity holders. Users can not only choose to pledge ETH, SOL, LUNA and KSM cryptocurrencies to obtain the same proportion of Tokens stETH, stSOL, stLUNA and stKSM, but also obtain an annualized return of 4.5% to 18%.

Screenshot Source - Lido website

Lido also issues its native token LDO. As of March 1, the price of LDO was $2.08, which is lower than the above four tokens. LDO is mainly used to participate in voting and governance, and is not listed on larger decentralized exchanges. The overall price trend is not proportional to Lido TVL.

Footprint Analytics - ETH & KSM & SOL & LUNA & LDO Token Price

This makes Lido different from MakerDAO, Liquity and other protocols. For example, the reward for depositing ETH in MakerDAO is DAI, while Lido can obtain derivative tokens of the same price by staking ETH, SOL and Luna tokens, and can also enjoy a high annualized return, and is not affected by the price of the native token LDO. This means that Lido is a good interest-bearing staking service protocol.

Lido Various Investment Methods

If users want to participate in Ethereum 2.0 staking independently, they need to stake 32 integer multiples of ETH, which is very unfriendly to retail investors. However, Lido is more user-friendly in terms of the number of staking, and users can participate in Ethereum 2.0 by staking any amount of ETH.

As of March 1, the total number of ETH staked was 1.98 million. Taking staking ETH as an example, let’s analyze how to earn more income on the Lido platform.

• Users can stake any amount of ETH and obtain 1:1 Token stETH, earning 4.5% APY. In contrast, AAVE can earn 0.2% APR by depositing ETH, which is negligible.

• Convert the original interest-bearing stETH asset certificate into liquidity and participate in other DeFi protocols (such as Curve, AAVE and Convex Finance) to earn more income. The operation is as follows:

• Putting stETH in Curve can earn about 3% APY.

Footprint Analytics – Curve website

• The income earned on Curve can also be invested in the Convex Finance platform to earn more income. After the user deposits stETH into the Curve platform to obtain LP, and then deposits it into the steth pool of the Convex Finance platform, he can earn about 5.1% APR.

Footprint Analytics – Convex Finance website

In summary, users can get 12% to 14% APR by staking any amount of ETH on the Lido platform for use on other DeFi platforms, which is a considerable income for users. Curve and Convex Finance are the top 5 protocols in the entire network. Not only are the risks controllable, but there is no liquidation risk. It is a completely single-coin staking model.

Lido's Pros and Cons

Lido's advantages:

• Friendly and flexible to newbies

• Can be pledged to external contracts to obtain higher APY

• Single coin pledge mode

Disadvantages of Lido:

• Penalty Mechanism

Lido is a platform built on Ethereum 2.0 Beacon Chain (a new proof-of-stake blockchain). After collecting tokens pledged by users, they are stored on the Beacon Chain. It has a reward and penalty mechanism. When a Rebase occurs, the supply of tokens will increase or decrease algorithmically based on the staking rewards in the Beacon Chain. Rebase occurs when the oracle reports Beacon statistics.

• Income is not stable

The balance of stETH will be updated at 24:00 UTC every day. If the balance of stETH increases, you can get a certain reward; if the balance of stETH decreases, you will lose a certain amount of Token stETH. However, the annualized return on staking on Lido is 4.5% (if it is staking ETH), which does not conflict with the rewards and penalties on the Beacon Chain, and the two are calculated separately.

• Gas fees are also a cost to be considered for small users

This article is contributed by Footprint Analytics community

The above content is only personal opinion, for reference and communication only, and does not constitute investment advice. If there are obvious misunderstandings or data errors, feedback is welcome.

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