Understanding Liquid Staking and the Evolving Landscape

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Liquid staking has emerged as a game-changing trend in the blockchain and decentralized finance (DeFi) space. It offers users the ability to unlock the liquidity of their staked assets while still earning staking rewards. This article aims to provide a comprehensive understanding of liquid staking, its benefits, and the current state of this evolving trend.

I. What is Liquid Staking?

Liquid staking addresses the liquidity issue associated with traditional staking services. When participants stake their tokens in a proof-of-stake blockchain network, those tokens become locked and cannot be traded or used as collateral in DeFi protocols. Liquid staking service providers solve this problem by minting a new token that represents a claim on the underlying staked asset. These tokens can then be traded or used as collateral, unlocking the value of the staked assets.

II. Benefits of Liquid Staking:

Liquid staking offers several advantages to participants in the staking ecosystem:

1. Unlocked Liquidity: Liquid staking tokens enable participants to access the inherent value of their staked assets by allowing them to be traded or used as collateral in DeFi protocols. This unlocks liquidity that was previously unavailable.

2. Composability in DeFi: By representing staked assets as tokens, liquid staking tokens can be utilized across various DeFi protocols, including lending pools, decentralized exchanges, and prediction markets. This expands the possibilities for earning yield and engaging in diverse financial activities.

3. Reward Opportunities: Liquid staking allows participants to continue earning staking rewards while also earning additional yield through DeFi protocols. This enhances the potential returns on staked assets, providing a dual-income opportunity.

4. Outsourcing Infrastructure Requirements: Liquid staking service providers handle the complexities of staking infrastructure, allowing users to participate in staking and earn rewards without the need for technical expertise or large token holdings. This accessibility opens up opportunities to a wider audience.

III. The State of Liquid Staking:

Currently Lido is the project that monopolizes the liquid staking market share, but can Lido keep that position forever? Let's find out with us:

1. Dominance of stETH: The largest entity staking on the Beacon Chain, Lido, holds a significant market share, with a 29.4% stake in all staked ETH. This dominance has been achieved through Lido's first-mover advantage and its focus on building deep liquidity for stETH.

2. Liquidity as a Priority: Liquidity has been a key focus for liquid stakers, as secondary markets for liquid staking derivatives (LSDs) are crucial for exiting positions. Lido has successfully established deep liquidity for stETH by implementing a substantial incentive program, investing $208 million in token incentives in 2022.

3. Growth and Competition: While Lido remains a dominant player, its growth rate has slowed in comparison to other major LSD issuers. Its market share in liquid staking has decreased by 3.4% and by 1.0% overall. The intense competition for stake post-merge has led to the emergence of viable alternatives.

4. Changing Market Share: Lido's market share has seen a decline as newer players enter the liquid staking arena. Although Lido still commands a 74.0% share in liquid staking, it has attracted only 53.0% of deposits into these protocols post-merge. Coinbase's cbETH, with its ability to convert existing stake into cbETH, has captured a significant 33.6% share of liquid staking inflows since the merge, posing a formidable challenge.

IV. Future Outlook for Liquid Staking:

As the trend of liquid staking continues to gain traction, several noteworthy developments and upcoming events can be anticipated:

1. Increased Competition: With the emergence of alternative players and the growing popularity of liquid staking, competition among liquid staking service providers is expected to intensify. Established players like Lido will need to innovate and adapt to maintain their market position and address concerns related to centralization.

2. Diversification of Liquid Staking Derivatives (LSDs): As the demand for liquid staking derivatives expands, we can anticipate the introduction of new tokens representing staked assets beyond the popular stETH. This diversification will offer users a wider range of options to choose from based on their preferences and investment strategies.

3. Integration with DeFi (LSDFi): Liquid staking is likely to integrate with and leverage the capabilities of upcoming new DeFi protocols. This integration could include features such as yield farming with LSD, lending with LSD, options trading with LSD,etc. further enhancing the earning potential and utility of staked assets.

4. Regulatory Considerations: As liquid staking grows in popularity and prominence, regulators may start to examine its implications within the broader regulatory framework. Clear guidelines and regulations may be established to ensure compliance and investor protection in the liquid staking ecosystem.

6. Collaboration and Partnerships: To foster growth and address evolving challenges, liquid staking service providers are likely to forge strategic collaborations and partnerships. These alliances could involve collaborations with decentralized exchanges, or Wallets and Multisig Wallets, creating synergies and expanding the reach of liquid staking.

Multi Signature wallets like Orosign can provide an additional layer of security against hackers. Multisig wallets require two or more private keys to authorize a transaction, making it much harder for hackers to gain access to your funds. In addition, Orosign is completely open to support Liquid Staking that meet the criteria that ensure the safety of customers, compliance with the law and convenience for users.

Orosign is a Self-Managing Mobile App For Digital Assets that serves as an interface of Orochi Ecosystem, which can integrate multiple games and native decentralized applications. Orosign allows users to interact with all applications on Orochi Computation Layer and empowers customers to organize and manage their digital assets.

Orosign is designed for ease of use, even for non-crypto users. You can send, receive or store various cryptocurrencies and digital assets safely and securely with Orosign mobile app.

Currently, Orosign allows customers to create their own multisignature wallet with minimal cost as well as customize smart contracts to meet their own expectations. Off-chain signing and verification are used to secure the signing process. All proofs are verified independently with secp256k1, which is the most widely used elliptic curve in the blockchain space, thanks to its 256 bits security level. Thus, the fund is safe as long as the majority of private keys are safe

Conclusion

Liquid staking has revolutionized the staking landscape by unlocking liquidity and expanding the utility of staked assets in the DeFi ecosystem. The dominance of stETH, particularly through Lido, has created a powerful network effect. However, competition is intensifying, with alternative players challenging Lido's market share. As the liquid staking market continues to evolve, it is crucial to monitor how different service providers adapt to changing dynamics and maintain competitiveness. Ultimately, liquid staking offers a promising avenue for participants to maximize the value of their staked assets while benefiting from the growth of the DeFi space.

About Orochi Network

Orochi Network is a cutting-edge zkOS (An operating system based on zero-knowledge proof) designed to tackle the challenges of computation limitation, data correctness, and data availability in the Web3 industry. With the well-rounded solutions for Web3 Applications, Orochi Network omits the current performance-related barriers and makes ways for more comprehensive dApps hence, becoming the backbone of Web3's infrastructure landscape.