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Ethereum has transitioned from a proof-of-work consensus mechanism into proof-of-stake, which requires users to put ETH as collateral to secure the network. In doing so, ETH stakers earn staking rewards. However, self-staking has a few barriers to entry, such as a minimum deposit of 32 ETH, which equates to over $100,000 at the time of writing.
Additionally, solo stakers will need to learn how to set up a validator, purchase hardware that meets staking requirements, and maintain their node with zero downtime.
By abstracting these difficulties away for the user, liquid staking services allow anyone to deposit ETH and earn staking rewards from their capital.
Liquid staking is a service provided by both DeFi protocols and centralized exchanges alike. By aggregating user deposits into a staking pool, liquid staking platforms help users meet the 32 ETH threshold.
Liquid staking protocols also provide a validator service, keeping up with the required hardware and software requirements. Users simply pay a percentage of their rewards for the service and keep the rest of the yield.
For many, the benefits of liquid staking outweigh traditional staking.
The main differentiator between how liquid staking works and a simple staking service is the issuance of liquid staking tokens (LSTs). When a user deposits their ETH, they receive a token that represents their staked asset, allowing them to use it in decentralized finance (DeFi) or other platforms. Since the token is transferable, users can sell or buy it on the secondary market, hence the term “liquid”.
Here is a breakdown of the most popular liquid staking options below.
Lido liquid staking is the most popular option by far, with over 60% of LST market share and over $30B of TVL. The liquid staking protocol issues the stETH token to depositors, which is well integrated into a number of DeFi protocols, such as EigenLayer, Aave, and Uniswap.
When Ethereum first introduced proof-of-stake, many were concerned by the inability to withdraw staked ETH. Lido addressed this pain point by incentivizing a stETH/ETH liquidity pool with LDO, allowing it to trade close to 1:1 with ETH. With the elevated APY, many users began to stake with Lido and provide liquidity.
The deep liquidity base attracted more stakers who became assured of liquidity, and also allowed DeFi applications to integrate stETH into lending markets and yield derivative products. Aave, for example, could onboard stETH as collateral only after they were confident they could liquidate it if it was at risk of defaulting.
By increasing utility for stETH, Lido further cemented its position as the market leader for LSTs.
Rocket Pool is a unique competitor in the LST landscape, prioritizing security for users and the health of the Ethereum network over maximum returns. Instead of controlling the validator set, Rocket Pool allows anyone to become a validator for depositors’ staked ETH. By requiring them to post ETH and RPL as collateral, Rocket Pool ensures these validators are financially aligned with the success of the protocol and depositors.
Though validators have to be compensated for the increased requirements, Rocket Pool’s stakers are willing to receive lower staking yields in exchange for a more robust security model and increased decentralization for Ethereum.
Frax, a stablecoin DeFi protocol, is one of the latest participants to join the LST vertical. Its frxETH token acts as a stablecoin to maintain a 1:1 value with ETH, while its sfrxETH is a yield-bearing LST.
By utilizing its ecosystem of products, Frax was able to quickly bootstrap its staked ETH TVL to over $800M, becoming a leading protocol in the space. Due to its large vlCVX position, Frax was able to incentivize frxETH LP yields on Curve, thus attracting frxETH minters.
With its own lending market, Frax’s LSTs were integrated into Fraxlend, where users can deposit Frax LSTs as collateral to borrow FRAX, a USD stablecoin. Furthermore, Frax has its own native bridging contracts and allow Frax tokens to be bridged onto other chains.
With staking yield compressing as more stakers enter the market, Origin Ether attempts to address decreasing ETH yield with additional streams of income. On top of ETH staking yield, OETH holders earn from several streams of rewards.
OETH yield is enhanced through its integration with ssv.network, which boosts staking APYs by offering SSV token incentives. Additionally, its AMO strategy enables highly capital efficient liquidity mining on Curve and Convex, further boosting yield for holders.
The decision to stake ETH depends on each users’ personal risk tolerance and goals. Certain users may prefer holding plain ETH in their hardware wallet, minimizing any counterparty risk or potential mistakes they make. Others may choose to self-stake to support the network, while others simply go for the highest returns.
If you prefer to passively earn ETH yields via an aggregator which has proven strategies and tier-1 audits, look no further than OETH. All strategies can be monitored directly on-chain, and currently boasts a trailing 30-day APY above 7.5%. Head over to OETH.com to read more.
