Here’s why the growth of token staking could be bullish for Lido (LDO)

Posted On 26/04/2022

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Liquid staking has grown in popularity over the past year thanks in part to the launch of the Ethereum beacon chain and the inability of ETH stakers to withdraw their tokens until the full launch of the consensus layer. 

As a result, Lido (LDO) has established itself as a leader in the liquid staking sector. Lido is one of the main staking protocols for several popular tokens and it allows token holders to earn an extra yield by putting their staked assets to work in decentralized finance (DeFi).

LDO/USDT 4-hour chart. Source: TradingView

Data from Cointelegraph Markets Pro and TradingView shows that the price of LDO trended higher throughout the month of March and then entered a consolidation period in early April. Currently, the wider market is in a sharp downtrend, but the growth of the staking sector and upcoming Ethereum “merge” could still lead to bullish outcomes for LDO.

Expanding liquid staking options

LDO price reversed trend toward the end of February and this was in part due to the addition of Polygon (MATIC) liquid staking to the Lido protocol, which was developed in conjunction with Shard Labs.

At the time of writing, there is more than $14.5 million worth of MATIC staked on Lido and it is earning a 8.7% yield. The protocol currently allows staking of ERC-20 MATIC tokens and stakers receive stMATIC in return, which can be utilized in DeFi protocols on the Ethereum and Polygon network.

The addition new assets, as well as an increase in the amount of Ether staked on Lido sent the total value locked on the protocol to a record-high $20.83 billion on April 5 and currently this figure stands at $18.3 billion according to data from Defi Llama. 

Total value locked on Lido Finance. Source: Defi Llama

New partnerships and integrations increase Lido’s marketshare

Investments from institutions and integrations with other protocols also paint a bullish picture for LDO. The project recently received a $70 million investment from Andreessen Horowitz’s firm a16z firm.

Along with the $70 million investment, a16z also revealed that it would be staking a portion of its Ether holdings on the platform as a way to help reduce some of the operational complexities for institutional investors.

Lido also benefited from multiple integrations throughout March and April, including staked Ether (stETH) being added to the lending pools on AAVE. Staked Solana (stSOL) was also integrated on multiple platforms in the Solana ecosystem, including Raydium, Friktion Finance and multiple protocols adding support for staked Terra (stLUNA).

Related: The many layers of crypto staking in the DeFi ecosystem

Enhancing decentralization could attract investors

Another factor that could help boost the forward outlook for LDO is the developers’ focus on enhancing the decentralization of the protocol.

One step in this process is the adoption of Distributed Validator Technology (DVT), which groups validators into independent committees that propose and attest to blocks together as a way to help reduce the risk of an individual validator underperforming or misbehaving.

This helps to simplify and speed up the process of adding new node operators (NOs) because new operators can be paired with a group of majority trusted NOs to help decrease potential risks.

A second improvement includes the ability to stake based on a Node Operator Score which is derived from several metrics and this helps provide an incentive to operators to maintain optimal performance.

One final improvement is the creation of new mechanics such as longer time-locks and giving veto rights to a quorum of stETH holders as a way to mitigate the risk of governance capture to prevent unplanned changes to Lido.

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