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Liquid Staking Overtakes DeFi to Become the Second Most Popular Crypto Sector

liquid staking overtakes defi to become the second most popular crypto sector

Liquid staking has grown significantly, surpassing decentralized lending and borrowing in terms of user engagement. With liquid staking, users can earn rewards for locking their crypto currencies on a blockchain network without sacrificing the liquidity of their funds.

Total Value in Liquid Staking Protocols Is Over $14.1 Billion

On Monday, the total value of cryptocurrencies put away in liquid staking protocols was a staggering $14.1 billion—making it the second largest crypto market sector as per DeFi Llama’s data source. Decentralized exchanges topped all other sectors with deposits amounting to $19.4 billion, whereas DeFi lending/borrowing protocols came third at $13.7 billion in terms of deposited value locked up within them.

The imminent Shanghai update for Ethereum is creating a buzz among investors, as it will be the first time that stakers can remove both their ETH and accrued rewards. Liquid staking has been the top-performing crypto sector of 2021, with its Total Value Locked (TVL) skyrocketing by almost 60%. This upgrade should enhance liquidity significantly; since December 2020, over 16.5 million ETH has gone into Ethereum’s Beacon Chain, out of which 42% was locked through liquid protocols like Lido.

liquid staking overtakes defi to become the second most popular crypto sector

Utilizing liquid staking protocols such as Lido, users gain derivative tokens like staked ether (stETH), which equates to their stake in a 1:1 ratio. Through these derivative tokens, additional yield can be created across DeFi protocols. This year alone has seen the impressive performance of Lido’s governance token LD0 skyrocket by 220%, outperforming both bitcoin and Ethereum substantially! CoinDesk data also shows that other rivaling platforms, such as Rocket Pool & Frax, have also had large gains with their governance tokens!

The Yield Difference May Also Be Effective in the Popularization of Liquid Stake

Liquid staking has become increasingly common compared to decentralized lending, which can be attributed to the difference in yields between these two sectors. For example, Lido – which holds over 75% of the liquid staking market share – offers an annual percentage return (APR) ranging from 4.8% on staked ether up to 6.3% APR for Polygon’s MATIC token, all higher than those available when going through Aave’s top stablecoins like USDT, USDC, or DAI.

Liquid staking is on the rise, with ETH being significantly lower than other layer 1 cryptocurrencies in terms of its percentage of supply staked. Markus Thielen, head of research and strategy at Matrixport, shared that only 14% of ETH is currently being stored versus 58%, which is average for coins operating in similar circumstances. Binance Research seconded this opinion when they forecasted a greater influx into staking protocols after the Shanghai upgrade. As such, it’s likely there will be an ongoing surge in interest regarding liquid staking.

According to Binance Research’s report this month, many individuals have been eagerly awaiting Shanghai to stake their ETH since its withdrawals will eliminate the liquidity risk and unknown lock-up period.

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