Liquid staking, which allows users to earn rewards for locking cryptocurrency in a blockchain network while retaining the liquidity of the locked funds, is now bigger than decentralized lending and borrowing.

The total value of crypto assets deposited in liquid staking protocols was $14.1 billion as of European hours on Monday, making it the second-largest crypto market sector, according to data source DeFi Llama. The total value locked in the DeFi lending and borrowing protocols was $13.7 billion, the third largest, while decentralized exchanges, with deposits of $19.4 billion, held the top spot.

Ethereum's upcoming Shanghai upgrade, which will allow stakers to withdraw the ether (ETH) they have staked and the accumulated rewards for the first time, has galvanized investor interest in liquid staking. Liquid staking is the best-performing crypto sector this year, with growth in total value locked (TVL) approaching 60%.

Liquid staking, which allows users to earn rewards for locking cryptocurrency in a blockchain network while retaining the liquidity of the locked funds, is now bigger than decentralized lending and borrowing.

The total value of crypto assets deposited in liquid staking protocols was $14.1 billion as of European hours on Monday, making it the second-largest crypto market sector, according to data source DeFi Llama. The total value locked in the DeFi lending and borrowing protocols was $13.7 billion, the third largest, while decentralized exchanges, with deposits of $19.4 billion, held the top spot.

Ethereum's upcoming Shanghai upgrade, which will allow stakers to withdraw the ether (ETH) they have staked and the accumulated rewards for the first time, has galvanized investor interest in liquid staking. Liquid staking is the best-performing crypto sector this year, with growth in total value locked (TVL) approaching 60%.

"It [the upgrade] will innovate the current space by allowing for healthy competition between liquid staking solutions, will strengthen ETH's position by providing yield from staking/unstaking, and will give users the security of maintaining sovereignty over their assets," Messari CEO Ryan Selkis said in a newsletter published Friday.

By opening up to withdrawals, the upgrade is expected to improve overall liquidity. Since December 2020, more than 16.5 million ETH has been staked in Ethereum's Beacon Chain, of which 42% has been locked through liquid staking protocols, mainly Lido.

Users of liquid staking protocols like Lido receive derivative tokens such as staked ether (stETH) on a 1:1 basis. These derivative tokens represent user's stake and can be used to generate additional yield across Defi protocols. Lido's governance token LDO has rallied 220% this year, outperforming industry leaders bitcoin and ether by a huge margin. Governance tokens of Lido's rivals Rocket Pool and Frax have also surged, according to CoinDesk data.

Liquid staking's increased popularity relative to decentralized lending could also be attributed to the yield differential between the two sectors.

Lido, which controls over 75% of the liquid staking market, offers an annualized percentage return (APR) of 4.8% on staked ether, 6% on staked solana and 6.3% on Polygon's MATIC token. That's higher than the rates available for lending top stablecoins USDT, USDC and DAI on the DeFi giant Aave.

Chart

Ether staking ratio is materially lower than its. competitors. (Binance Research) (Binance Research)

Binance Research recently voiced a similar opinion, forecasting more inflow of money into staking protocols after the Shanghai upgrade.

"It could be argued that many groups of individuals had been waiting for Shanghai to stake their ETH, as withdrawals will remove the liquidity risk and uncertainty of an previously undefined lock-up period," Binance Research said in a report early this month.


All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Week Ahead: Crypto’s doom or a new all-time high in the making? Premium

Week Ahead: Crypto’s doom or a new all-time high in the making?

Bitcoin price shows no signs of a directional bias as it hovers around $66,000. The 2019 BTC price fractal hints at a potential correction should the US Fed cut interest rates. Investors can expect a retest of the $60,000 to $45,000 levels depending on the severity of the nosedive.

More Bitcoin News

Binance faces backlash following announcement to delist FET

Binance faces backlash following announcement to delist FET

Binance released an announcement stating it will delist FET, stirring FUD among holders. FET experienced a heavy price drop following the announcement, with crypto community members criticizing Binance. FET is down 8% following the announcement.

More Binance News

Ethereum resumes downtrend as Canada sees another staked ETH ETF launch

Ethereum resumes downtrend as Canada sees another staked ETH ETF launch

Canada-based Purpose Investments announces conversion of its Ethereum Capital Corporation into staked Ethereum ETF. Conversion sees Canada embracing Ethereum staking ahead of US after SEC signals discomfort with concept. Ethereum price's recent downtrend could prove a good buy-the-dip opportunity.

More Ethereum News

Crypto ETFs experience heavy outflows after FOMC meeting

Crypto ETFs experience heavy outflows after FOMC meeting

CoinShares' weekly report reveals crypto ETFs experienced heavy outflows of over $600 million. US Bitcoin ETFs experienced the highest decline with $565 million in outflows. Bitcoin, Ethereum and Solana start week in decline as they struggle to shake off impact of FOMC meeting.

More Cryptocurrencies News

Bitcoin: Has BTC found a local price bottom?

Bitcoin: Has BTC found a local price bottom?

Bitcoin (BTC) price looks set for a mild fall this week, weighed by slight outflows in the US spot ETFs and the US Fed keeping a hawkish interest-rate outlook despite easing inflation. Technical indicators suggest that BTC could face a further 5% correction in the short term before resuming the uptrend.

Read full analysis

BTC

ETH

XRP