Research Summary
This report provides an in-depth analysis of Ethereum’s performance since its transition to Proof of Stake (PoS), known as The Merge. It covers key aspects such as ETH issuance, staking, and the impact of liquid staking on the DeFi sector. The report also discusses the performance of Lido, a dominant player in the liquid staking market.
Key Takeaways
Ethereum’s Performance Post-Merge
- ETH Supply Reduction: Since The Merge, the supply of ETH has fallen by about 300K ETH or a reduction of 0.25%. This is due to the burning of base fees and the transition to PoS.
- Increased Staking: The number of validators has increased by 40% to 800k since the activation of withdrawals, with over 26M ETH being staked, representing 22% of the supply.
- Impact of Fee Market and Staking Rate: The future of ETH’s supply is contingent on the strength of the fee market and the rate of ETH staked.
Liquid Staking and DeFi
- Dominance of Liquid Staking: Liquid staking remains the biggest DeFi sector with over $20B Total Value Locked (TVL), overtaking DEXes in TVL dominance.
- Role of Liquid Staked Derivative Tokens: Liquid staked derivative tokens (LSDs) represent unlocked liquidity users take to other protocols. Lido’s stETH dominates the LSD volume on major platforms.
- Emergence of LSDFi Industry: An LSDFi industry has blossomed, allowing a range of decentralized finance operations with the many forms of liquid staked Ether.
Lido’s Performance
- Market Dominance: Lido continues to dominate the liquid staking market on Ethereum, commanding ~72% market share with $14B TVL.
- APR Challenges: Lido’s average APR has dipped below Frax Ether’s market-leading APR, driven by Frax’s two-token design.
- TVL Growth: Lido’s TVL growth this month is partially driven by SOL deposits, although its diversification efforts away from Ethereum to Solana are losing steam.
Actionable Insights
- Monitor Fee Market and Staking Rate: The future of ETH’s supply is contingent on the strength of the fee market and the rate of ETH staked. Stakeholders should closely monitor these factors.
- Explore Liquid Staking Opportunities: With the dominance of liquid staking in the DeFi sector, there are potential opportunities for stakeholders to explore in this space.
- Assess Lido’s Performance: Despite its market dominance, Lido faces challenges in terms of APR and diversification. Stakeholders should assess these factors when considering their engagement with Lido.
