While the broader crypto market is mired in a protracted slump, one segment has emerged as a phoenix rising from the ashes: liquid staking.
According to a recent Bloomberg report, assets locked in liquid staking services have surged 292% to reach $20 billion. This revival positions liquid staking as the new kingpin of the decentralized finance (DeFi) arena, even as major tokens and traditional DeFi services like lending continue to struggle.
One part of the crypto sector — liquid staking — has shaken off a prolonged digital-asset slump to come within touching distance of an all-time high https://t.co/DA1LABcpd6
— Bloomberg Crypto (@crypto) September 5, 2023
After hitting a peak of $21 billion in assets in April 2022, liquid staking went through a rough patch. Factors like the TerraUSD stablecoin collapse and a $2 trillion nosedive in the broader crypto market in June 2022 had left this sector battered. However, liquid staking protocols like Lido and Rocket Pool have seen a robust comeback.
Despite the majority of DeFi services languishing well below their 2021 and 2022 highs, liquid staking has proven itself to be resilient. Steve Berryman, Chief Business Officer at staking service provider Attestant, noted that the number of Ethereum validators has spiked nearly 40% following a major network enhancement in April.
Network upgrades and validator proliferation
One significant tailwind for the liquid staking market has been Ethereum’s embrace of this form of staking through various network upgrades. Ethereum validators, responsible for locking up ether (ETH) tokens to facilitate transactions on the network, have been incentivized with an annual yield of roughly 4% in additional tokens. This trend has also inspired rival blockchains like Solana and Cardano to offer staking rewards, adding to the sector’s momentum.
The adoption of liquid staking has made it easier for smaller investors to participate. Typically, direct staking necessitates complex hardware and software and a sizeable capital commitment. Liquid staking platforms have streamlined this process, allowing investors to pledge smaller amounts while also offering a tradable version of the staked coins.
Regulatory hurdles and international perspectives
The resurgence in liquid staking occurs in a landscape of heightened regulatory scrutiny, especially in the U.S., where centralized exchanges have faced crackdowns on their staking products.
Such regulatory pressures have led platforms like Kraken and Bitstamp to halt these offerings. Asian financial hubs like Hong Kong and Singapore have also expressed similar concerns.
Despite these hurdles, Lido now stands as the largest DeFi platform with $14 billion in locked assets, and its native token has surged by 60% this year.
Kunal Goel, a research analyst at Messari, likens liquid staking services to “the on-chain equivalent of government bonds,” noting their lower risk profile and history devoid of major hacks or exploits.
Further, HashKey Capital, a leading Asian crypto fund, also recently published a report highlighting the market’s incredible growth and the potential impact of Distributed Validator Technology (DVT) on the Liquid Staking Derivatives (LSD) sector.
What lies ahead
The Cosmos Hub is mulling over a significant software upgrade proposal aimed at enhancing safety in liquid staking across its network. As the market continues to evolve, investors should note a cautionary trend: as more people pile into liquid staking, the yield may see a reduction, according to the report by HashKey Capital.
In sum, the rise of liquid staking is a bright spot in an otherwise cloudy crypto environment. With major tokens and other DeFi applications struggling to regain their former glory, liquid staking has not just survived but thrived, solidifying its position as a dominant force in the DeFi space.
A struggle for momentum
Ethereum and Bitcoin are struggling to regain their past momentum. Ethereum trades at $1,633.28 with a market cap of nearly $196 billion, according to real-time data from CoinMarketCap. While it has seen a marginal increase of 0.04% in the last 24 hours up to the time of writing, it remains significantly below its historical highs, reinforcing the notion of a market that’s still groping for direction.
Bitcoin, the market leader, doesn’t paint a much rosier picture either. With a trading price of $25,764.71 and a live market cap exceeding $501 billion, it has slid by 0.50% as of writing.
The sluggish performance of these flagship cryptocurrencies underscores the turbulent conditions that continue to plague the digital asset market.
Ethereum’s lackluster growth, despite significant technological upgrades and the surge in liquid staking, shows that the recovery remains an uphill battle.
Likewise, Bitcoin’s half-percentage drop within a single day further emphasizes that the crypto market is still far from entering a new phase of confidence and growth. These figures place the resurgence of liquid staking into sharper focus, illustrating just how remarkable its rebound has been amid broader market lethargy.