Lido Staked Ether

What is Lido Staked Ether (stETH)?

Lido staked Ether is a token that represents ETH staked on the Lido platform. Lido, which stands for “liquid” and “DAO,” lets users participate in staking and earn a yield from their funds in other ways.

One of the main draws of the Lido platform was Ethereum’s pre-merge staking minimum of 32 ETH. Unless you’re well-capitalized or an early entrant to cryptocurrency, this is a significant investment for many.

Not only that—stakers would have to lock their ETH away for an unknown amount of time. Needless to say, setting aside so much money without a definite unlock date isn’t the easiest decision to make.

Lido eliminated these issues since it’s a “liquid” staking service. Even better, users could leverage their staked ETH to participate in on-chain activities, such as lending, to compound the yields earned from staking.

Lido staked Ether also reflects the rewards earned from staking on a daily basis. For example, stETH balances update at 12 p.m. UTC every day.

When Was Lido Staked Ether Launched?

Lido DAO was created in October 2020 and launched in December of that year. While Lido now offers tokens other than stETH, its conception and launch revolved around the concept of lido staked Ether.

Who are the Founders of Lido Staked Ether?

Lido DAO, and by extension, Lido Staked Ether, was founded by Konstantin Lamashuk, Vasiliy Shapovalov, and Gordon Fish.

Lido DAO has significant investor backing. The project’s angel investor list includes Stani Kulechov of Aave, Will Harborne of Deversifi, Julien Bouteloup of Stake Capital, and Kain Warwick of Synthetix.

Prominent Lido DAO members include firms like Semantic VC, Parafi Capital, Libertus Capital, Terra, Bitscale Capital, StakeFish, StakingFacilities, Chorus, P2P Capital, and KR1.

How Does Lido Staked Ether Work?

The premise of the Lido platform is that it offers users a way to stake their Ether to earn rewards without worrying about minimum lockups and staking infrastructure.

When ETH is staked on Lido, stETH tokens are minted for the user. These stETH tokens are issued at a 1:1 ratio to the user’s deposit.

StETH can then be used to generate yield. While the user’s ETH or other deposits earn daily rewards from staking, stETH tokens can be used in DeFi. StETH can be used as collateral, as well as for lending, yield farming, and much more.

The official Lido blog provides a selection of guides on using staked tokens, including stETH on DeFi platforms such as Aave.

Under the hood, Lido is a decentralized application or set of smart contracts consisting of several parts:

• Staked tokens, such as stETH
• Deposits and staked token minting
• Node operator registry
• Beacon chain oracles and staked token balance update
• Withdrawals

Withdrawals of stETH tokens do not activate until the Ethereum hard fork called Shanghai goes through. However, stakers can still swap or sell stETH on Ethereum-based decentralized exchanges like Curve or Uniswap to effectively unstake their tokens.

What Makes Lido Staked Ether Unique?

Lido staked Ether is unique for the capital efficiency it grants ETH holders. It allows staking but also adds an element of liquidity and utility they wouldn’t have if they chose to stake on the beacon chain.

Several cryptocurrency exchanges also started allowing ETH2.0 staking, letting users gain daily rewards from tokenized, staked ETH. However, they can’t always provide as much DeFi utility to these staked tokens as is seen with stETH.

Furthermore, cryptocurrency exchanges are usually centralized. A big part of Lido’s appeal is its decentralization, so choosing stETH became a logical decision for many ETH holders.

How Is the Lido Staked Ether Network Secured?

Lido staked Ether is an ERC-20 token on the Ethereum blockchain, which means that stETH balances and transactions are all verified by Ethereum.

Ethereum is secured by proof-of-stake (PoS) consensus now that its “merge” away from proof-of-work is complete. PoS uses a system of cryptoeconomic incentives to ensure network nodes toe the line.

As mentioned, 32 ETH is the minimum amount of ETH required for staking. This allows a node operator to become an Ethereum validator. Properly fulfilling this role is rewarded with more ETH, proportional to the validator’s stake.

If that’s the carrot, Ethereum’s PoS also uses a stick. Called “slashing,” this is a mechanism by which a misbehaving validator has their stake confiscated. It is a significant punishment, even if the validator has only staked the minimum amount.

In the event that Lido validators get slashed, the Lido insurance fund kicks in. Detailed information on Lido’s plans to handle the event of slashing is available in Lido’s research forums.

What is the Use of stETH?

Lido staked Ether is primarily used in DeFi. Ordinary ETH stakers limit themselves to staking a large amount of ETH for a previously unspecified amount of time and earning passive income. StETH allows holders to earn the same passive income and use the tokens in other ways.

Decentralized finance applications, which are very common on Ethereum, give stETH plenty of utility. It can be used in lending activities or as collateral for loans from these platforms. Yield farming is also an option, and providing liquidity to pairs like stETH/ETH can be very appealing to many.

One of the most important aspects of stETH is that it provides users a way to “unstake.” While the actual withdrawal of ETH from staking is not yet possible, stETH can be traded on decentralized exchanges. Thus, by transferring stETH to someone else in exchange for ETH, you’ve effectively managed to unstake.

Who Controls Lido Staked Ether?

Lido staked Ether is a product of the Lido platform, which is controlled by the Lido Decentralized Autonomous Organization (DAO). The Lido DAO is composed of LDO holders. The DAO members govern Lido to ensure its efficiency and stability.

Lido DAO governance is a three-step process. First, ideas and proposals are published on the Lido research forum so that the community can discuss them. This is followed by 7 days of feedback, discussion, and refinement.

The next step is gasless Snapshot voting. This also takes 7 days but can’t end on the weekend. A minimum quorum dictates that more than 5% of the total token supply must vote.

Finally, there’s Aragon voting. Aragon is a DAO framework featuring on-chain voting. Aragon voting lasts 72 hours and includes a 48-hour conventional voting phase and a 24-hour objection phase.

Detailed information on DAO membership and guides on voting can be found in the Lido DAO member manual.

How Much stETH is In Circulation?

The amount of stETH in circulation depends on the amount of ETH deposited into the Lido contract. The supply and other metrics can be tracked via the stETH token contract address.

Currently, stETH has a supply of over 4.67 million stETH, which is distributed among over 120,000 holders.

How Do You Buy stETH?

One of the easiest ways to get stETH is right from the source—Lido itself. You can stake your ETH on Lido and receive stETH tokens that will settle on-chain.

You can also buy stETH (or “unstake” by selling stETH) on DEX platforms like Curve and Balancer. These platforms are also ideal for earning an additional yield on your stETH by becoming a liquidity provider.

Given the popularity of Lido staked Ether, it’s also possible to buy stETH on select cryptocurrency exchanges.

Is It Possible to Buy stETH Instantly?

Transaction speed when you buy stETH depends on where you’re buying it. If you use a DEX or stake ETH on Lido, you are engaging the Ethereum blockchain. This will involve a certain gas fee and take a few minutes if the chain is particularly congested.

Buying stETH on a centralized exchange will likely be cheaper and instant to boot. The catch is that your options for actually using stETH may be limited if they’re sitting on an exchange account. If you want to use stETH in DeFi, you’ll have to withdraw it from your exchange account, which could take a while.

How Do You Store stETH?

Lido staked Ether is an ERC-20 token and can be stored in practically any Ethereum-compatible wallet. If you want to use it in DeFi or actively trade stETH, your best bet might be a trusted hot wallet like Metamask.

Lido Staked Ether Energy Consumption

Since Lido staked Ether is an ERC-20 token, it is one of many assets hosted by the Ethereum blockchain.

Ethereum was once subject to plenty of criticism, given that it used proof-of-work mining for consensus. This is what most environmentally-minded crypto critics usually refer to, calling to mind images of rows upon rows of GPUs filling out entire warehouses.

However, this is a thing of the past. While proof-of-work Ethereum still exists in the form of EthereumPoW and Ethereum Classic, what we call Ethereum is now proof-of-stake. Along with its merge from PoW to PoS came a very significant 99.95% reduction in network energy consumption.

Is stETH a Good Investment?

Analyzing stETH as an investment is impossible without considering ETH itself as an asset since stETH is simply a tokenized form of Ethereum.

Lido staked Ether can be viewed, in a sense, as a derivative of ETH that is nevertheless backed by the underlying asset. By holding stETH, you become an entitlement holder of the ETH that is locked away in staking.

It could be suggested, then, that stETH is for those who believe in ETH but aren’t just happy to “hodl.” It gives ETH holders a way to earn yield on top of yield by putting stETH to work.

Staking ETH comes replete with hurdles, as well as iron-clad belief in the asset itself. With lido staked Ether, you enjoy not only the benefits of yield and potential appreciation but also a contingency exit plan that ordinary ETH stakers don’t have access to.