Is Lido's Sole Reliance on Liquid ETH Staking Worrisome? – CryptoMode

Liquid staking provider Lido remains the DeFi project with the highest Total Value Locked. The majority of funds come from Ethereum stakers, although it supports various networks. More importantly, the project has had a TVL increase of over $3 billion since the start of 2023. 

Lido Keeps Growing

There are some concerns over what happens to liquid staking providers in a few weeks. Following the Ethereum Shanghai upgrade, anyone can stake ETH directly, regardless of the amount. In addition, users will receive the rewards they accrued over the past year and a half. It will trigger a substantial liquidity increase and may reduce the appeal of third-party staking services like Lido and consorts. 

Even so, Lido’s $3bn+ TVL increase throughout early 2023 is remarkable. The momentum should slow down ahead of Shanghai. However, that isn’t the case yet, and many people may stick with their liquid staking provider. However, that will require higher monetary gain than staking ETH directly. It will be intriguing to see what these protocols come up with in that regard.

Lido's TVL grew by $3.4b since Jan 1st. Using the Token Inflows chart on their protocol page, we see that $746.55m of it was ETH deposited in the last 4 days of February

Inflows allows us to focus on actual money moving into the protocol, ignoring TVL growth from price increases pic.twitter.com/zymbfcPy3G

— DefiLlama.com (@DefiLlama) March 1, 2023

One contributing factor to Lido’s growing TVL is the influx of WETH. Vast sums were deposited in the final days of February. That momentum is remarkable, as the rest of the month was a lot more modest. Daily inflows of $25 million or less were the norm. Seeing those rates spike to over $250 million twice in three days raises some questions. It may be a sign of people getting some liquid staking done while they still can, although it could be more manipulative. 

Putting that aside, Lido now has over $9.5 billion in Total Value Locked. Unlike most other DeFi projects, the liquid staking provider recovered well from various industry setbacks. The UST depeg and FTX collapse haven’t affected the protocol too much. Moreover, momentum is bullish for the provider, even as the crypto markets take a breather. 

All-in on ETH Staking

One potentially worrisome sign is how Lido only remains at the top due to ETH staking. After Shanghai, that rate is likely to drop off significantly. While Lido runs across other blockchains and networks, it does not generate a meaningful TVL. Its second-largest network is Solana at under $55m staked. That is a steep gap from the $9.47 billion in ETH liquidity. Moonbeam, Moonriver, and Terra Classic represent even lower numbers. 

It is also worth paying attention to Lido’s Treasury. As one would expect from a DeFi protocol, its native token represents most of Treasury liquidity. LDO tokens are almost 86% of the total holdings, well ahead of ETH (7.56%) and stETH (2.57%). That isn’t necessarily problematic, although it is worth paying attention to regardless. 

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