For years, various blockchain projects have been rumored to be future “Ethereum killers,” projects that would dethrone Ethereum and take away its core digital assets. That day seems to have come, albeit an inside job. Lido-staked Ethereum (stETH) and other liquid staking derivatives are designed to make Ether (ETH) as an asset, obsolete.
The transition from proof-of-work (PoW) to proof-of-stake (PoW) allows everyday decentralized finance (DeFi) users to simply hold stETH or any other ETH liquid-storable derivative and benefit from the rewards reserved for miners. This has given rise to a wave of interest in institutions from individuals to centralized finance (CeFi) and DeFi in the industry. ETH liquid staking derivatives have received a lot of attention in the past month, and titans of the industry – including Coinbase and Frax – have released ETH liquid staking derivatives.
Liquid Stock Derivatives offer all the benefits of regular ETH and are also yield generating assets. That means holders can remain exposed to ETH price action and maintain liquidity while leveraging leverage. Holdings of wallets holding stETH will gradually increase as stock yields are regularly added to the initial sum.
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While most equity strategies require funds to be locked up in an issuer, liquid structuring derivatives allow users to maintain liquidity while still benefiting from available yield. ETH locked in staking validators will not be available for withdrawal until some uncertain time in the future, possibly with the Shanghai update. While stETH still trades at a slight discount to ETH, this gap is expected to close permanently once cash withdrawals begin. Simply put, ETH liquid staking tokens are more capital efficient than regular ETH or conventional savings practices.
From a consumer perspective, there’s little reason to hold regular ETH, the only downside being that the price will increase when you hold a liquid stock that increases your chances of incorporating a product. The creators of the project have adopted the same thinking. From DeFi to nonfungible token (NFT) projects, teams at Web3 have integrated stETH into their protocols, with behemoths like Curve and Aave making it easier for DeFi users to integrate stETH into their investment strategies.
For lending protocols, stETH provides users with the ability to increase bond yields without having to make risky investment decisions. NFT projects can establish a source of income with their earnings instead of leaving them with a limited amount. By making it easier for Web3 projects to stay afloat and keep their communities happy, ETH Liquid Staking Derivatives frees project leaders to move beyond financial stress and maintain true innovation.
Besides being a great capital saver, ETH liquid staking derivatives help secure the Ethereum network. stETH and other derivatives represent Ether, which is pegged to Ethereum authentication to help provide network security.
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The centralization of stock ETH is a major criticism of the PoS consensus model, with Lido accounting for over 80% of the market share of liquid stock derivatives and controlling over 30% of ETH. However, the recent proliferation of alternatives is set to allay concerns as market share expands among different firms. Exchanging ETH for liquid staking derivatives is a way for users to support decentralization while covering their wallets.
As the advantages of staking continue to be covered in the press, it is clear that liquid staking derivatives will become a central part of the simplest DeFi strategies. Coinbase giving “cbETH” means that even retail investors are familiar with the strategy. As users begin to flock to the free product, we will likely see more startups accepting liquid stock derivatives in protocols. Before long, many DeFi users may only hold ETH to cover their gas bills.
The proliferation of liquid stock derivatives provides a product to strengthen the amount of ETH deposited in various proof systems, enhancing network security and providing financial benefits to supporters. ETH’s days seem to be numbered. Aside from the nominal gas allowance, any ETH converted into liquid staking output will be cash only. It seems that the long-rumored ETH killer has finally appeared, although it seems that it will only improve the security of Ethereum and the wallets of its supporters.
Foreman himself He is the founder of Sturdy, a DeFi lending protocol. He fell in love with cryptography in high school before studying mathematics and computer science at Stanford. When not working on fitness, Sam practices Brazilian Jiu-Jitsu and roots for the New York Giants.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.