Liquid staking, a corner of the cryptocurrency world, has experienced a remarkable resurgence, coming close to its all-time high, according to Bloomberg reports. As the broader digital-asset market faced a prolonged slump, liquid staking emerged as a standout performer, with assets locked in liquid staking services surging by a staggering 292% to reach $20 billion, rebounding from a crisis in June 2022.
Liquid Staking Winning For The DeFi Sector
This surge has positioned liquid staking as the dominant segment in decentralized finance (DeFi), surpassing the previous top application, lending. Liquid staking services such as Lido and Rocket Pool reached their peak in April of the previous year, with over $21 billion in assets, only to experience a decline during a turbulent period marked by the TerraUSD stablecoin’s collapse and a $2 trillion crypto-market downturn.
Meanwhile, the prices of major tokens and the interest in most DeFi services remain well below the records set in 2021 and 2022, creating a stark contrast with the resurgent liquid staking sector, Bloomberg stated.
Liquid staking’s popularity has surged, particularly after Ethereum embraced it as part of network upgrades in the past year. Ethereum validators, those who lock up Ether tokens to facilitate Ethereum transactions, now earn an annual equivalent of about 4% in additional coins. Rival blockchains like Solana and Cardano have also entered the staking rewards arena.
The number of validators in Ethereum has seen significant growth, with a nearly 40% increase following a substantial network enhancement in April, according to Steve Berryman, Chief Business Officer at staking service provider Attestant.
Participating directly in staking typically involves complex software, hardware, and substantial capital commitments. Liquid staking protocols, however, have simplified the process, accepting smaller investments and offering users a version of pledged coins that can be used elsewhere.
The Risk Analysis
Kunal Goel, a Messari research analyst, likened these services to “the on-chain equivalent of government bonds,” noting their lower risk profile and absence of major hacks or exploits.
This resurgence in liquid staking comes amid a backdrop of increased regulatory scrutiny on crypto, particularly in the United States, where centralized exchanges’ staking products have faced crackdowns, prompting some platforms like Kraken and Bitstamp to discontinue these offerings. Similar regulatory concerns have arisen in Hong Kong and Singapore.
Currently, Lido ranks as the largest DeFi service with $14 billion in assets locked on the platform. Its native token has surged by 60% this year, surpassing the 27% increase in a benchmark of the largest 100 cryptocurrencies.
More Projects In Liquid Staking
Furthermore, the Cosmos Hub is considering a significant software upgrade proposal, which includes replacing existing staking modules with the Liquid Staking Module (LSM), a move aimed at enhancing safety in liquid staking across the Cosmos Hub.
HashKey Capital, one of Asia’s leading crypto funds, recently published a report on Liquid Staking Derivatives (LSDs) in the DeFi market, highlighting the market’s remarkable growth. The report also discusses the impact of Distributed Validator Technology and the potential for further growth in the LSDfi sector, though with a cautionary note on reduced staking yields as more investors enter the market.
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