Lido plans to make staked ETH 2.0 liquid
Lido is a staking solution for ETH 2.0 built to solve several transition problems. Essentially, it will bridge the gap between ETH 2.0 and ETH 1.0 – enabling users to access their staked funds and rewards ahead of time.
What is Lido?
Ethereum is finally gearing up to launch ETH 2.0, starting a transition period towards Proof of Stake (PoS). Once the migration is complete Ethereum will be the largest PoS network in cryptocurrency by a large margin. However, it is the transition period itself that poses several problems.
- Early stakers will be agreeing to lock up their ETH until transactions are enabled on ETH 2.0, which could be years.
- Stakers will not be able to move or access their staked funds at all. Resulting in staked ETH becoming illiquid and unusable by any DeFi product.
- Users can only stake in multiples of 32 ETH.
These three major concerns could severely impact participation in staking on ETH 2.0 because the early adopter is taking significantly more risk. Additionally, this creates a paradox situation as without early adopters the migration to ETH 2.0 will not be successful.
Staked funds are always illiquid
Lido also raises another question: staked funds will always be illiquid and inaccessible for the DeFi ecosystem. Meaning that even when transactions are enabled on ETH 2.0 and it becomes possible to claim rewards along with unstaking. The network needs stakers to achieve consensus and stay secure, but that means a lot of capital will be locked up. Users will be faced with a dilemma: secure the network or stake with DeFi protocols to earn yields? Currently, we do not know which option will offer the best incentives.
Lido makes staked ETH liquid
Users who choose to stake through Lido will receive a corresponding token that represents their stake 1:1, called bETH. Furthermore, as your ETH generates rewards on ETH 2.0 so will your bETH balance increase. Essentially, all your funds will remain accessible and liquid. Lido also enables users to stake ETH with any amount, so there is no need to have exactly 32 ETH available. You could compare it to a form of flexible farming by Value DeFi.
As an ERC20 token bETH can be compatible with all the major DeFi protocols. It will be tradable on Uniswap, usable as collateral on Aave, or be a liquidity provider on Balancer. And once transactions do start on ETH 2.0, holders can redeem bETH for ETH. Lido aims to mitigate the risks of being an early adopter for ETH 2.0, keeping funds liquid, while also providing yield generating opportunities for bETH.
We don’t have any tech details yet for the platform, they should be released over the next few weeks. Keep watching!