The rise of liquid staking has resulted in significant changes in the supply dynamics of Ethereum’s native token and its DeFi demand.transition to a proof-of-stake mechanism, liquid staking protocols have taken center stage, plugging gaps prevalent in the conventional staking method. Popularity of projects likehas skyrocketed, catapulting it to become the largest DeFi protocol with a total value locked of a $14.
These tokens allow users to participate in staking while also giving them the right to use them elsewhere in DeFi for higher yield opportunities., Lido was the dominant player in the market, with nearly 32% of ETH’s total circulating supply getting staked through the largest liquid staking protocol.Moreover, it meant that Lido received 32% of all the rewards accrued staked ETH, and hence 32% of new ETH was entering circulation through Lido.
As per Glassnode’s analysis, if Lido receives a 221k in newly created ETH, about 105k is locked back again in the staking pool, lowering net emission by 116k ETH.LSTs like stETH represent every unit of ETH locked on the staking pool. As they continuously receive rewards and are free to be used elsewhere, many experts have termed stETH as a yield-bearing version of ETH.
To the contrary, demand for stETH and its wrapped version wstETH jumped by 142% since then. Notably, the Shapella update completed earlier this year played a significant role in its rise.stETH’s demand was also reflected in the increasing transfer volume vis-à-vis ETH. After remaining stable for 2022, stETH gained momentum in 2023. It rose from $127 million, to a range of $450 million – $880 million.
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