Lido Staked Ether (STETH) was launched as part of the Lido protocol in December 2020. This happened when the Lido protocol went live in anticipation of Ethereum’s transition to Proof of Stake with Ethereum 2.0, where staked ETH will become a big part of the core operations of the network.
Lido was founded by a group with a rich background related to blockchain and staking, namely Konstantin Lomashuk, Vasiliy Shapovalov, and Alvaro D. Martin. The Founders aimed at simplifying the procedure for normal users with fewer barriers regarding capital investments.
STETH being an ERC-20 token on the Ethereum network means that its transaction throughput is directly tied to Ethereum’s performance. STETH itself doesn’t directly influence TPS since it relies on the Ethereum blockchain’s transaction mechanism, which is now Proof of Stake (PoS) post-Merge. With upgrades like The Merge to Proof of Stake on the Ethereum blockchain.
Rather than traditional mining, STETH involves staking. Users receive STETH when they deposit ETH into Lido, representing their staked ETH plus accrued rewards. Lido pools these ETH stakes and distributes them across a set of validators chosen by the Lido DAO, ensuring decentralization and risk mitigation. The STETH token rebases daily to reflect staking rewards; thus, it is called a ‘liquid’ staking solution where users can use their staked assets in DeFi applications without unstaking.
Lido has partnered with several major DeFi platforms, including their partnership with Curve Finance for trading and liquidity. It is also a part of the Aave protocol for borrowing and lending. Lido has gone on to collaborate with DeFi platforms like Balancer, Yearn Finance, and more to improve the utility of STETH within the broader DeFi ecosystem.
Lido has also diversified with Wrapped Staked ETH (wstETH), an unwrapped version of the staked ETH derivative that does not rebase and is more easily integrated into contracts that are unable to support rebasing tokens. Lido has announced its plan of integrating Layer 2 scaling solutions like zkSync and Starknet to increase its reach and efficiency.
In recent times, Lido has been making headlines for its substantial total value locked, reaching $36.49 billion, which has given it a leading market share in Ethereum liquid staking. A lot of emphasis has been put on governance and decentralization, including increasing the diversity of node operators to prevent centralization risks. Discussion around fee structures and the sustainability of staking rewards also continues, reflecting Lido’s commitment to ongoing evolution with the Ethereum ecosystem.
As of December 11, 2024, Lido Staked Ether is currently trading at $3,0728. The price has been resilient, mostly maintaining parity with ETH, with the added yield from staking, although there can be slight deviations from the pegged value of 1:1 if market dynamics or liquidity issues arise. Lido Staked Ether has become something special within the Ethereum ecosystem, filling the gap between staking and liquidity. With ongoing developments, strategic partnerships, and a focus on enhancing user experience through governance and tech advancements, STETH is not only a stake in Ethereum’s future but also an active component of the DeFi landscape.
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FAQs
Q1: What advantages does STETH offer to small-scale investors who can’t stake 32 ETH directly on Ethereum?
- A: STETH allows investors to stake any amount of ETH, making staking accessible without the need to own 32 ETH, which is required for direct staking on Ethereum. This democratizes staking, enabling smaller investors to participate and earn rewards without the high entry barrier.
Q2: How is the security of the Lido protocol ensured, especially regarding the smart contracts handling STETH?
- A: Lido’s security is maintained through multiple layers, including regular smart contract audits by reputable firms, a bug bounty program to encourage the discovery and reporting of vulnerabilities, and decentralized governance by the Lido DAO, which oversees updates and security measures.
Q3: Can you explain how the daily rebase of STETH works and its impact on holders?
- A: The daily rebase of STETH increases the token balance in users’ wallets to reflect the staking rewards earned over the last 24 hours. This process automatically compounds the rewards, increasing the total amount of STETH without requiring any action from the holder, enhancing the yield over time.
Q4: What are the risks associated with using STETH in DeFi, particularly in relation to smart contract vulnerabilities?
- A: While STETH integrates well with DeFi, risks include smart contract vulnerabilities (though mitigated through audits), potential slippage due to rebasing when used in certain DeFi platforms, and the risk of liquidity pools not fully supporting rebasing tokens, which could lead to unexpected token balance changes.
Q5: How does Lido handle the slashing risk for validators, and what does this mean for STETH holders?
- A: Lido mitigates slashing risk by distributing staked ETH across numerous validators selected by the DAO, reducing the impact of any single validator’s poor performance. If slashing occurs, it’s proportionally distributed, minimizing individual impact on STETH holders.
Q6: What’s the purpose of wstETH, and how does it differ from STETH in functionality?
- A: wstETH (Wrapped Staked ETH) is a non-rebasing version of STETH, designed for better compatibility with DeFi applications that do not support rebasing tokens. It allows for a stable balance, making it easier for integration into smart contracts where a constant token balance is needed.
Q7: How does Lido’s integration with Layer 2 solutions like zkSync and Starknet benefit STETH users?
- A: Integrating with Layer 2 solutions reduces transaction fees and speeds up transaction times for STETH users, enhancing the liquidity and usability of STETH in DeFi applications. This can lead to a more seamless experience when using STETH in various protocols, making staking more efficient and cost-effective.