Liquid Staking Platforms See 60,000 ETH Outflow in 2 Weeks; Lido Dominates Reductions

April 28, 2024 Bitcoin.com

Liquid Staking Derivatives Lose Ground With Over 380,000 ETH Withdrawn in April

April 15, 2024 Bitcoin.com

In 22 Days, Liquid Staking Platforms Witness a 340,000 ETH Decline

April 2, 2024 Bitcoin.com

BTC and ETH Derivative Tokens Dominate by Securing Several Top Positions in the Crypto Economy

March 17, 2024 Bitcoin.com

How liquid staking can potentially harm the Ethereum ecosystem: HashKey report

August 3, 2023 Coin Telegraph

Coin Telegraph

HashKey Capital highlighted risks such as reduced competition, increased risk of censorship, decreased security and collusion by big players.

As it continues to grow, liquid staking brings considerable risks to the space and needs better decentralization, according to a report published by digital asset firm HashKey Capital.

According to the report, the overall liquid staking derivatives (LSD) market has surged to more than $22 billion in total value locked in 2023. In addition, the market capitalization of LSD projects has reached $18 billion.

*Overview of the liquid staking derivatives market in 2023. Source: HaskKey Capital*

While the growth of LSD protocols may be good for their respective communities and tokenholders, it also could be a double-edged sword. According to the report, it could harm the Ethereum ecosystem in various ways.

As the table above shows, many LSD protocols rely on a small number of node operators that centralize a large number of validator nodes. According to the report, the number of node operators should be a “point of concern for centralization.”

The report notes that centralization in liquid staking can have several harmful effects on the ecosystem, such as reduced competition and increased risk of censorship. According to the report:

“There is a heightened possibility of censorship with centralized staking players, as they may be subject to incentives or regulatory pressure to censor transactions. This can potentially result in a disruption of the trust within the network.”

In addition, as it gets further centralized, there are risks of decreased security, as big staking players can make it easier for attackers to carry out 51% attacks. Moreover, there’s also an increased risk of collusion.

“Centralized stakers can collude to carry out actions that go against the decentralization ethos and against the users, such as malevolent MEV extraction and frontrunning,” the report reads.

While there are centralization risks, HashKey also recognizes that most protocols are very recent and have made plans to decentralize and add distributed validator technology to their protocols for better decentralization and resiliency.

Magazine: SEC reviews Ripple ruling, US bill seeks control over DeFi, and more: Hodler’s Digest, July 16-22

Lido, Rocket Pool team members argue over decentralization

July 4, 2023 Coin Telegraph

Centralization

A Lido team member claimed Rocket Pool is not really governed by its DAO, but Rocket Pool community members pushed back, claiming the protocol is becoming more decentralized.

A team member for Lido has accused competitor Rocket Pool of being too centralized in a July 4 social media post. Both Lido and Rocket Pool are liquid staking protocols that allow users to delegate their cryptocurrency to validators and receive derivative tokens in exchange.

According to the post from Lido's community staking lead Dmitry Gusakov, the Rocket Pool contracts are controlled by the Rocket Pool team, allowing the team to change any parameters and call any method. This means that Rocket Pool developers can increase the inflation rate to an arbitrarily large percentage or increase fees to up to 100%.

Gusakov claimed this vulnerability does not exist in Lido’s contracts, as in Lido, these actions are “fully controlled by [decentralized autonomous organization] LidoDAO.”

Rocket Pool Grants Management Committee member Waq responded to the accusation, stating that the vulnerability was already known to the team and will be fixed in the future. Waq accused the Lido team of trying to take credit for discovering an issue that was already known.

Here we go again with the "brand new" discoveries of @Rocket_Pool being super malicious again Not a single word of how the community has been working for over a year on fixing this and the progress we're making. Once we fix this, they'll rush to take the credit like always.
— Waq | Rocket Fuel (@waqwaqattack) July 4, 2023

According to Gusakov's post, the RocketStorage contract at Ethereum address 0x1d8f8f00cfa6758d7bE78336684788Fb0ee0Fa46 contains a parameter called “guardian.” Many functions in Rocket Pool contracts are also labeled as “onlyGuardian,” meaning they can only be called by the account listed in this parameter, which is currently set to the RocketPool deployer account at 0x0cCF14983364A7735d369879603930Afe10df21e.

Actions that can be performed by the “guardian” include changing the “RPL InflationIntervalRate” and the “ETH DepositFee,” implying that the team can increase the inflation rate of the Rocket Pool governance token (RPL) or remove users’ deposits by setting the fee to 100%, Gusakov stated.

Content creator Chris Blec shared the post, claiming that it proves “‘pDAO is not a DAO” or that RPL token-holders are not actually in control of Rocket Pool’s governance.

In response, RocketPool community advocate Jasper.lens stated that the community is already aware of this centralization issue, which will be patched in the upcoming Saturn upgrade. According to Jasper, the centralization occurred during a period when voting systems for Rocket Pool’s DAO were still being designed and tested. The team decided to not allow the DAO to practice on-chain voting in the initial testing phase. However, testing has now been completed, and the upcoming Saturn upgrade “is all about patching the decentralization holes.”

In a comment agreeing with Jasper.lens’ post, Waq claimed that the Rocket Pool community “has been working for over a year on fixing this” and predicted the Lido team would “rush to take the credit like always” once the problem is fixed.

Liquid staking protocols have been growing in popularity over the past few months. On May 1, blockchain analytics platform DefiLlama stated that these protocols have surpassed decentralized exchanges as the top DeFi category in terms of total value locked. On May 30, Tenet partnered with LayerZero to implement liquid staking on more blockchains in the future.

Yield farming app accumulates $12M TVL 2 weeks after launch

May 30, 2023 Coin Telegraph

Yield farming app accumulates M TVL 2 weeks after launch

Coin Telegraph

The Origin Ether app deposits Ether into Curve, Convex, stETH, rETH and sfrxETH.

A new yield farming app called Origin Ether has accumulated over $12 million in total value locked (TVL) just 14 days after launch, according to data from blockchain analytics platform DefiLlama. TVL is a metric that measures the dollar value of assets inside an app’s smart contracts.

*Origin Ether total value locked, May 9-30. Source: DefiLlama*

The app was launched on May 16, according to a representative from the development team. DefiLlama data shows the app already had $793,000 locked inside its contracts before the launch, which team members or other early partners may have supplied.

Once the public launch occurred on May 16, deposits to Origin Ether (OETH) rapidly accumulated, leading to a TVL of over $13 million by May 30. This is a gain of approximately $12.6 million over 14 days.

According to the app’s official documentation, Origin Ether generates yield from Ether (ETH) by depositing it into multiple liquid staking and decentralized finance (DeFi) protocols. Specifically, it utilizes an algorithmic market operations strategy on Curve and Convex to maximize returns. Before being deposited to Curve and Convex, some of the ETH is converted into liquid staking derivatives, including Lido Staked Ether (stETH), Rocket Pool Ether (rETH) and Frax Staked Ether (sfrxETH). The protocol’s documentation states that this allows users to gain additional farming rewards from these providers.

Ether liquid staking protocols allow ETH holders to stake their coins with a network of providers in exchange for tokens representing those deposits. They have become more popular as Ethereum moved to proof-of-stake consensus and enabled withdrawals.

On May 1, DefiLlama reported that liquid staking protocols had become the top DeFi category, surpassing the TVL of decentralized exchanges. On May 30, cross-chain bridging protocol LayerZero partnered with the Tenet network to increase the use of liquid staking in the Cosmos ecosystem.

LSD for DeFi: Tenet, LayerZero partner to drive cross-chain liquid staking adoption

May 30, 2023 Coin Telegraph

Coin Telegraph

Cross-chain interoperability protocol LayerZero’s infrastructure aims to drive liquid staking adoption across the DeFi ecosystem.

Layer-1 blockchain Tenet is set to see its liquid staking derivatives platfrom plug into a cross-chain decentralized finance (DeFi) ecosystem through a partnership with omnichain messaging protocol LayerZero.

Tenet has plugged into LayerZero’s cross-chain protocol to access the wider DeFi ecosystem across a number of different blockchains. The Cosmos-based blockchain is a DeFi-focused ecosystem which provides liquidity and yield products for liquid staking derivatives (LSDs).

LSDs have been a central cog in the DeFi ecosystem for some time. A prime example is Ethereum (ETH) liquid staking pools like Lido allowing users to stake and unstake ETH seamlessly leading to massive amounts of capital being staked for lucrative yields.

Tenet’s network allows users to create projects and tokens which will now be integrated with LayerZero technology. The interoperability opens up users to the broader DeFi ecosystem across a variety of smart contract blockchains.

Tenet’s DeFi blockchain operates using its own diversified proof of stake consensus framework, with its native stablecoin backed by a basket of interest-bearing LSDs from various blockchains.

Staking a basket of blockchain-based assets is touted to remove the risk of network attacks by major token holders. Tenet’s genesis stake of its network security was allocated to ETH, ATOM, BNB, MATIC, ADA, and DOT.

Tenet CEO Gregory Goodman told Cointelegraph that LSDs remain a popular DeFi solution that extends the ability to profit from staked assets:

“They allow you to maximize opportunities, by leveraging on the liquidity of staked assets. LSDs will essentially allow PoS native tokens to maximize their earnings potential.”

Goodman also highlighted the importance of LayerZero’s infrastructure in becoming a key component to the future of DeFi.

“The technology they’ve built is a generation ahead of bridging and avoids some of the key exploits we’ve seen bridges succumb to.”

The DeFi ecosystem has seen its fair share of exploits over the last 12 months. Cross-chain bridge attacks saw more than $2 billion stolen from the DeFi ecosystem, with the infamous Axie Infinity Ronin bridge hack accounting for a significant amount of that figure.

Tenet is also set to launch a bridge using LayerZero to make their omnichain LSDs interoperable with the 27 different blockchains supported by the latter’s network.

Over 440,000 Ethereum Added to Liquid Staking Derivatives in Two Weeks

May 13, 2023 Bitcoin.com

New Cosmos chain will use liquid staking tokens from other networks for security

May 3, 2023 Coin Telegraph

ANKR

Staked ETH, BNB, ATOM, SOL and MATIC will be usable on Tenet as “restakes” to gain further rewards.

A new Cosmos-based blockchain called “Tenet'' will use liquid staking coins from other networks to secure its transactions, potentially allowing the new network to inherit the security of older ones, according to a May 3 announcement from the developers.

The network is currently available as a testnet and will launch a mainnet version as soon as testing is complete. This comes after liquid staking has recently become the largest decentralized finance (DeFi) protocol category.

Liquid staking protocols such as Lido, Rocket Pool and Ankr allow users to stake their coins with a network of validators and receive rewards without having to run their own nodes. These protocols also provide users with tokens called “liquid staking derivatives,” or LSDs, redeemable for the underlying deposits and rewards.

According to the announcement, Tenet will allow users to “restake” these LSDs to earn additional rewards on its network. And it will provide users with tokens that represent the LSDs themselves. The team calls these third-order tokens “liquid liquid staking derivatives,” or LLSDs. LLSDs will be usable in lending apps and decentralized exchanges throughout the Tenet network, the announcement said.

The team expects there to be two core benefits to using LSDs instead of a native coin to secure the network. First, it “ensures the long-term security of the Tenet chain by leveraging the joint security of each [layer 1] ecosystem it services.” Second, it should “bring additional liquidity and yield opportunities to LSDs.”

At launch, the protocol is expected to allow liquid staking derivatives of Ether (ETH), BNB (BNB), Cosmos (ATOM), Solana (SOL) and Polygon (MATIC) to be restaked on Tenet.

The new network is being developed by former executives of Ankr and Blockdaemon and is advised by members of the Lido, Ankr and OpenAI teams.

Liquid staking protocols have existed since 2020 when Lido was first launched. They grew in popularity in 2022 and early 2023 as the Ethereum network implemented a move to proof-of-stake and began to allow staking withdrawals. On May 1, crypto analytics platform DefiLlama announced that liquid staking had become the top category of DeFi apps when measured by total value locked.

Some experts have argued that liquid staking may grow in the future as a result of the Ethereum Shanghai upgrade.

liquid staking derivatives

Share this video