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Liquid staking, an interest-earning strategy for proof-of-stake cryptocurrency owners, is having its moment in the spotlight, becoming the second-largest decentralized finance (DeFi) sector with an apparent assist from investor and diplomat Justin Sun.
The Shanghai upgrade of the Ethereum
ETH
According to blockchain analytics company Arkham Intelligence, the sum was transferred to Lido in a series of transactions by Sun, founder of the Tron blockchain-based operating system, who continued to feed ether into Lido through Monday. His balance on the platform is now $500 million, making him its largest individual staked ether holder.
The investment attributed to Sun is significant, bringing the value of assets in liquid-staking protocols to $14.22 billion as of Monday afternoon in New York, That’s just behind the $19.32 billion at decentralized exchanges, according to data provider DefiLlama. Liquid staking has replaced the lending and borrowing business as the second-largest sector of DeFi, following several high-profile failures of companies in that sphere last year.
On Saturday, Lido said it had received the largest daily stake inflow to date, bringing its total deposits to $9.34 billion.
The Huobi cryptocurrency exchange, which Sun also leads, did not respond to a request for comment. According to blockchain data recently examined by Forbes, Sun was one of the largest recipients of Binance’s collateral for dollar-backed tokens, which was spirited away from exchange wallets in August.
After recording the deposit, Lido announced it had activated a new safety feature, called the Staking Rate Limit, to address possible negative effects of such massive inflows without having to pause deposits altogether.
The update decreases the amount of stETH—the derivative tokens that are issued to a user upon deposits of ether in Lido on 1:1 basis—that can be minted at any one time (the daily cap is set at 150,000 ether) and replenishes this capacity at a rate of a approximately 6,200 ether per hour.
With the activation of the Shanghai upgrade sometime next month, Lido will also likely see substantial withdrawals from users who will seek to cash out their Ethereum stakes, some of which have been locked up for months as part of the exchange’s switch away from a proof-of-work business model.
But the update to Ether is expected to encourage liquid staking. “Today, many investors who would like to stake ETH and earn yield are sitting on the sidelines,” Matt Hougan, chief investment officer at crypto index fund manager Bitwise Asset Management, said last month. “After all, most investment strategies can’t tolerate an indefinite lock-up. So, most investors stay out of the market. But once that indefinite lock-up is removed, the percentage of investors willing to stake their ETH will explode.”
Lido’s governance token LDO
LDO
Along with his investment and technological activities, the Chinese-born Sun is the ambassador of Grenada to the World Trade Organization.