Liquid staking solutions have surpassed decentralized exchanges (DEXs) to become the top category of DeFi protocols in terms of total value locked (TVL). According to data from crypto analytics platform DefiLlama, liquid staking protocols such as Lido and Rocket Pool now have more TVL than DEXs.
TVL is a metric that measures the dollar value of all cryptocurrencies locked within a protocol’s smart contracts. In recent weeks, liquid staking protocols have taken the top spot, with $17.47 billion of cryptocurrency locked inside their contracts. This represents a $280 million increase from April 13, while DEXs have experienced a $1.66 billion decline to $17.2 billion during the same period.
Liquid staking protocols are staking pools that stake crypto on behalf of users. These protocols also issue tokens to users that represent the person’s deposited crypto. Because these tokens can be used in DeFi apps, liquid staking protocols allow users to both simultaneously stake their coins and use them in other applications. This has made them popular among investors looking for ways to earn passive income while still being able to use their cryptocurrency in other functionalities.
DefiLlama’s May 1 data reveals that Lido (stETH) is still the top staking protocol with $11.54 billion of cryptocurrency locked inside its contracts. Coinbase Wrapped Staked Ether (CBETH) is a distant second with $2.19 billion locked, and Rocket Pool (rETH) is third with $1.46 billion. The remaining protocols have less than $1 billion of TVL each, but collectively add up to $2.22 billion.
Liquid staking has become more popular as Ethereum has moved towards proof-of-stake and has allowed withdrawals. Ethereum has been moving to a proof-of-stake consensus algorithm with the launch of the Beacon Chain. This change has enabled users to stake Ethereum and earn passive income. While Ethereum 2.0 is still under development, the Ethereum community has shown a strong interest in liquid staking projects like Lido.
Lido was the first liquid staking protocol, and it launched in 2020. It aims to make staking accessible to all by providing a liquid token, stETH, that represents the underlying staked ETH. The token is tradeable on DEXs and can be used in other DeFi apps, allowing users to earn rewards on their staked ETH while still having the flexibility to use their tokens.
Several projects have followed in Lido’s footsteps, including Rocket Pool, a decentralised staking network that aims to decentralise Ethereum staking infrastructure. In addition to staking ETH, Rocket Pool allows users to stake ERC-20 tokens to earn rewards on their investments.
Liquid staking is seen as a key growth area for DeFi, especially as more investors look for ways to earn returns on their cryptocurrency holdings. With the rise of liquid staking protocols, investors can stake their crypto assets and use them in other applications simultaneously. This has made liquid staking solutions an attractive alternative to traditional staking, which can often be less user-friendly and lack liquidity.
With the continuing growth of DeFi, it is likely that liquid staking solutions will continue to rise in popularity. As more investors look to earn returns on their crypto holdings, protocols that offer flexible, liquid staking options will be in high demand. The rise of liquid staking solutions has also highlighted the importance of tokenization, as tokens that represent staked crypto assets have made it easier for users to access liquidity and earn returns on their investments.
Overall, the growth of liquid staking protocols has had a significant impact on the DeFi landscape, indicating that the market is maturing and becoming more diverse. As investors continue to explore the benefits of DeFi, it is likely that more innovative solutions, such as liquid staking, will emerge and contribute to the further expansion of the DeFi ecosystem.
