The Ethereum ecosystem has witnessed significant shifts in the staking landscape in 2023, driven by the remarkable growth of Liquid Staking Derivatives (LSDs). These developments are transforming the way participants engage with Ethereum, offering enhanced accessibility and liquidity options. In this report, we delve into the key trends and findings of CoinGecko's Ethereum Liquid Staking Report for 2023.
The Rise of Liquid Staking Derivatives (LSDs)
Following the launch of Ethereum's Beacon chain in December 2020, staking rewards became a reality for validators. However, a substantial 32 ETH stake was required, limiting participation. This barrier prompted the emergence of LSD protocols, designed to enable smaller ETH holders to engage in staking.
By August 2023, LSD protocols accounted for a substantial 43.7% of the total 26.4 million ETH staked. This remarkable growth was spurred by the Shapella upgrade, which saw significant increases in LSD staking activity, particularly in entry queues.
Yield and Performance
Despite the emergence of LSDs, yield has remained an attractive aspect of staking. The top 8 LSD protocols have maintained an impressive average yield of 4.4% Annual Percentage Yield (APY) since January 2022. Frax's sfrxETH emerged as a standout performer with an average yield of 6.2%, followed by Lido's stETH at 4.6% and StakeWise's SETH2 at 4.5%. This consistent yield is expected to decrease as more ETH gets staked.
Impacts on Ethereum's Emissions
LSDs have played a pivotal role in distributing staking rewards, distributing approximately 100,000 ETH in quarterly rewards. Notably, this accounts for over half of all ETH emissions since late 2022, emphasizing the significance of LSDs in Ethereum's ecosystem.
The Emergence of LSDFi Protocols
The success of LSDs has given rise to Liquid Staking Derivatives Finance (LSDFi) protocols. Players such as Lybra, Pendle, and EigenLayer have dominated the LSDFi sector, exhibiting a staggering 58.7x growth since January 2023. Despite their impressive gains, concerns about cartelization and concentration have surfaced, sparking discussions on self-limitation within the protocol and LSDs.
While Europe, the Middle East, and Africa (EMEA) remain the largest region for Ethereum, interest in LSDs is consistent across regions. The market has seen a surge in demand, with smaller and more traditional investors alike exploring the diversification of their portfolios through LSDs.
The Ethereum Liquid Staking Report for 2023 highlights the transformative impact of LSDs and LSDFi protocols on the Ethereum staking landscape. These developments have not only enhanced accessibility for smaller ETH holders but have also contributed significantly to the distribution of staking rewards. While challenges such as cartelization persist, the evolution of Ethereum staking continues to drive innovation and broaden participation.
As the Ethereum ecosystem continues to evolve, the role of LSDs and LSDFi protocols in shaping its future is set to remain a pivotal and intriguing aspect of the blockchain's narrative. To explore the complete report, please check out the 25-slide presentation provided by CoinGecko.
Disclaimer: The information provided in this report is for informational purposes only and should not be considered as financial advice or endorsement.