- LSTs beat ETH to become the largest collateral on the Aave lending protocol.
- Lido’s dominance remained unmatched, but other players improved their game.
Ethereum [ETH] Shapella upgrade, in addition to providing a supplement to staking, has unlocked new doors of opportunity for Liquid staking tokens (LST).
Realistic or not, here is the market cap of LDO in terms of BTC
The new buzzword in DeFi
According to a researcher from on-chain analytics company MessariLSTs have gradually started replacing native tokens as the primary collateral for decentralized finance (DeFi) on various networks.
In fact, these receipt tokens surpassed ETH to become the largest collateral on the leading protocol Aave [AAVE], accounting for nearly 78% of the total value locked (TVL) of the protocol. Similarly, LST’s share over Solana’s [SOL] lending platform Solend, turned out to be 89%.
Source: Messari
Staking, once considered a risky proposition due to ambiguity about withdrawals, received a boost after the Shapella upgrade allowed users to stake their ETH. The resulting effect has been the growth of derivatives of these locked assets, such as Lido Staked ETH [stETH]Rocket Pool’s rETH and more.
These tokens allow users to directly participate in staking, while also retaining the ability to use them elsewhere in DeFi for higher yield opportunities.
Liquid staking protocols are overtaking DEXs
According to Binance Semi-annual report 2023liquid staking surpassed decentralized exchanges (DEXs) to become the largest subsector in the DeFi landscape, accounting for 24% market share.
Source: Binance
The report went on to highlight Lido Finance [LDO]’s supremacy, which had a market share of 75% and maintained its status as the largest liquid staking protocol. But while Lido’s dominance has remained unparalleled, other players have been steadily upping their game.
The rise of Rocket Pool and Frax Ether saw a 55.8% and 228.6% increase in their year-over-year (YTD) market share, respectively.
Source: Binance
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CEX dominance drops
As a category, liquid staking protocols have increased their dominance and are outperforming other staking options such as centralized exchanges (CEX) and staking pools. Dates from Dune showed that CEX’s contribution to ETH staking fell from 34% to 20% since Shapella.
As can also be seen in the above image, Coinbase’s Wrapped Staked ETH has lost a whopping 23.5% of its market share since early 2023. Much of Lido’s rivals’ profits have come at the expense of Coinbase.