Ethereum upgrade-induced Liquid Staking hype could put an end to DEX’s dominance in the DeFi market

Ethereum price rallied significantly right after the Shanghai hardfork went live on the mainnet. The hype surrounding staking withdrawal that began a few months ago gained more strength after April 12 and remains strong. This is commendable that even after almost ten days, the impact has not dissipated since the hardfork went live in a fast-paced market. 

Fight for the title of the DeFi king

The Decentralized Finance (DeFi) market has been dominated by Decentralized Exchanges (DEXes) since September 2020, when they first gained momentum and currently hold over $24 billion in total value locked (TVL).

For a long time, no other DeFi sector noted enough interest to surpass the DEXes’ TVL. Staking protocols did come close to toppling its dominance around September 2021 but failed to do so, and over the next few months, DEXes’ value spiked. At their height in December 2021, such exchanges were worth more than the market capitalization of Cardano, Dogecoin, Ripple, USD Coin and Polygon combined at $93 billion.

Decentralized Exchanges TVL

Subsequent crashes in the crypto market wiped out a majority of this TVL. However, since the beginning of 2023, the DeFi market has observed the emergence of another category. The Shanghai hardfork and staking withdrawal discourse gained momentum around mid-January, and Liquid Staking decentralized applications (Dapps) began drawing more interest.

As a result, year-to-date Liquid Staking TVL grew by 127% from $8 billion to $19 billion, while Decentralised Exchange’s TVL only rose by a little over 33%, adding some $5 billion. 

DEX vs Liquid Staking protocols TVL

At one point in March, staking protocols did surpass their Liquid Staking alternates in terms of TVL, but the latter regained dominance soon after. While both kinds of protocols present similar functions, liquid staking Dapps are observing more investment due to the added benefit of easier withdrawal.

Now that only a $5 billion difference stands between DEXes and Liquid Staking protocols, it might only be a matter of time before the latter takes over the former. This would be possible if the Shanghai hype is sustained and Liquid Staking platforms continue to grow sustainably.