With native token $LDO nearing all time highs, leading liquid staking protocol Lido has been garnering a lot of talk amongst market participants.
Since its inception in December 2020, Lido protocol has experienced remarkable expansion, establishing itself as the foremost liquid staking protocol. It has accumulated more than 9.2 million staked ETH, representing a 31.7% share of the staking market.
When focusing purely on the Liquid Staking portion of the staking market, Lido has a 85.3% market share with its closest competitor being at 7.9%.
Potential Fundamental Catalysts
The adjustment of the Max Churn Limit in Q1 2024 and its impact on the activation queue:
Should staking interest surge again, maintaining the fixed churn limit of eight per epoch as dictated by EIP-7514 could cause prolonged wait times in the activation queue.
This scenario could potentially lead to a reduction in smaller Liquid Staking protocols yield due to the socialized nature of Liquid Staking Derivatives i.e; every LSD operates on a shared model where current users subsidize the yield of future users during the setup phase of new validators. If the addition of new validators stalls, it results in reduced yields for the existing users. In such circumstances, Lido, due to its substantial size, is likely to remain unaffected. However, smaller Liquid Staking Protocols could experience significant yield compression. This disparity could further solidify Lido's dominance in the market.
Distributed Validator Technology and Staking Router
At the heart of Lido's approach is the Staking Router, a key component that unites stakers, developers and node operators to bolster a decentralized Ethereum framework. With the implementation of Lido V2, the system now incorporates Distributed Validator Technology. This innovation disperses validators over a range of systems, thereby enhancing the network's durability and reducing the risk of singular points of failure. This advancement also simplifies the process of managing stakes. This progression emphasizes Lido's resolve to build a resilient set of Ethereum validators, ensuring they adhere to stringent criteria of quality, safety and decentralization.
No impending Unlocks
Lido has been fully vested since the end of August 2023. This lack of impending over-head supply may be beneficial in a trending market. Above is a chart breaking down the historical token allocation per respective entity, all of which have been fully unlocked as of 08/26/2023.
Conclusion
Lido's continued strength in the liquid staking domain is evident from its dominant market share and recent price outperformance, especially following the market-wide sell-off. The platform's strategic adaptations, including the implementation of Distributed Validator Technology and the Staking Router in Lido V2, have significantly enhanced its network resilience and stake management efficiency. The potential impact of the Max Churn Limit adjustment and the absence of impending unlocks since August 2023 further solidify Lido's position.
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