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Ethereum Liquid Staking Report 2023

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CoinGecko
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The launch of Ethereum's Beacon chain in December 2020 brought staking rewards to validators but required a hefty 32 ETH stake, prompting the emergence of pooled staking and Liquid Staking Derivatives (LSDs).

By August 2023, LSD protocols accounted for 43.7% of the total 26.4 million ETH staked. Post-Shapella, LSD staking surged, causing long entry queues while exit queues remained minimal. The top 8 LSDs yielded an average of 4.4% APY since January 2022, with Frax leading. However, yields are expected to decrease as more ETH is staked. 

LSDs have distributed about 100,000 ETH in quarterly staking rewards, capturing over half of all ETH emissions since late 2022. This growth has given rise to LSDFi, with Lybra, Pendle, and EigenLayer dominating the sector, growing by 58.7x since January 2023. Despite these gains, concerns about cartelization and concentration loom, prompting debates about self-limitation within the protocol and LSDs.

We’ve summarized the key highlights, but be sure to dig into the full 25 slides below.


Top 5 Highlights of CoinGecko’s Ethereum Liquid Staking Report

  1. Liquid Staking Derivatives (LSDs) were introduced to encourage smaller ETH holders to participate in staking and unlock liquidity after the Ethereum beacon chain launch in December 2020.

  2. LSD protocols continue to see consistent inflows of ETH, despite withdrawals being enabled post-Shapella. Lido, the leading LSD player, saw daily net inflows of +18K ETH.

  3. The ETH validator entry queue peaked at ~45 days for new validators to begin staking, while the exit queue remained below 10 days for 77.0% of the time. At its peak on June 10, the entry queue reached its highest point at 96,508 validators.

  4. The Top 8 LSD protocols have returned an average of 4.4% Annual Percentage Yield (APY) since January 2022, and are expected to decline as the amount of ETH staked continues to increase.

  5. Total Value Locked (TVL) in LSDFi protocols grew 5,870% since January 2023 and has reached $919.0M at the end of August 2023.

 


1. How Did Liquid Staking Derivatives (LSDs) Come About?

Liquid Staking Derivatives (LSDs) came about after the launch of the Ethereum beacon chain on December 1, 2020, which allowed holders to stake their ETH and become validators. In return for securing the network, ETH rewards were distributed to validators. However, becoming a validator required a minimum of 32 ETH, and withdrawals were only possible starting in April 2023. To promote staking participation among smaller ETH holders and provide liquidity options, LSDs were introduced.. 

What are Liquid Staking Derivatives (LSDs)?

Liquid Staking Derivatives (LSDs) are tokenized receipts that users receive when they deposit assets into liquid staking protocols, representing ownership of their staked assets. LSDs can be traded for other assets on exchanges or utilized as loan collateral.

LSD protocols operate differently from each other, with some having permissioned node operators, while others are permissionless. Each protocol also has different fee structures and methods of redistributing staking rewards. Despite competition between LSDs still rife, a new wave of protocols have emerged to build and innovate on existing LSDs, in the form of Liquid Staking Derivatives Finance (LSDFi). 
 

Despite ETH withdrawals being enabled with the Shapella upgrade on April 12, 2023, LSD protocols as a whole experienced net ETH inflows post-upgrade.

However, there were heavy outflows from large players such as Coinbase and Rocket Pool on several days. Meanwhile, Lido, the leading LSD player, saw daily net inflows of +18K ETH. It saw its largest outflow on May 18, with over 400K ETH withdrawn. This was then followed by 127K ETH staked on May 24, the highest daily net deposits experienced by the protocol since Shapella. 

Staked ETH flows have since stabilized between June and August, with deposits continuing to surpass withdrawals across LSD protocols, except Ankr. 

 

The Ethereum network has a "churn limit" that controls how many validators can join or leave the network. This limit changes depending on how many validators are currently active. When there are more validators waiting to join or leave than the churn limit allows, a "queue" forms. At the end of August, there were 2,475 validators leaving or joining the network on a daily basis.

On June 10, the entry queue reached its highest point at 96,508 validators. However, by August 31, it had gradually decreased to 54,098 validators. At its peak, validators had to wait for approximately 45 days before they could start staking.

The exit queue experienced a brief increase on June 13, reaching a peak of 2,810 validators. This coincided with a price correction for ETH, which dropped from $1,742 to $1,651 in the following days.

In summary, the exit queue remained at 0 for more than half of the time (55%) and stayed below 10 validators for 77% of the time.

 

The top 8 ETH LSDs have had an average yield of 4.4% Annual Percentage Yield (APY) since January 2022. During notable events within the crypto space (Ethereum Merge in Sep 2022, FTX collapse in Nov 2022, USDC depegging event in Mar 2023, and Shapella Upgrade in Apr 2023), yields tended to spike, reaching an all-time high of 18.2% in November 2022. 

Frax’s sfrxETH has been the best-performing LSD in terms of average yield, at 6.2% between October 2022 to August 2023. Lido’s stETH comes in second, with an average yield of 4.6%, followed closely by StakeWise’s SETH2 with 4.5%. Other LSD protocols offer yields ranging from 3.9% - 4.2%. Ankr’s ankrETH is an exception, offering an average yield of 3.5%, the lowest amongst LSD protocols. 

As of the end of August 2023, the average yield across the Top 8 LSD protocols is at ~3.28%, with 26.4 million ETH staked. However, yield is expected to decline as the amount of ETH staked continues to increase.

 

The Total Value Locked (TVL) across LSDFi protocols has grown 5,870% (58.7x) since January 2023, and has reached $919.0M on August 31, 2023. 

Lybra, which was launched post-Shapella, has become the dominant LSDFi protocol, with 39.1% of TVL or $359.0M by the end of August. EigenLayer has also benefited from the LSDFi hype and has $245.0M in TVL since its launch in June 2023. Its success could be partially attributed to users hoping for a potential airdrop.

Pendle, which was launched in 2021, experienced renewed interest amidst the surging popularity of LSDs in 2023. Its TVL rose by 903%, from $15.4M to $139.4M between January and August 2023, and is now the third largest LSDFi protocol.

Read the Report: Deep Diving Into ETH Liquid Staking

We would appreciate a link credit to our report on CoinGecko if any of the above insights are used. A link credit allows us to keep supplying you with future data-led content that you may find useful.

 

 
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This report is sponsored by Tenet, an EVM-compatible Layer-1 blockchain that provides liquidity and yield opportunities to LSDs. Bridge to Tenet today.

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