The world’s most-used blockchain, Ethereum, is switching to a new validation system this summer called proof-of-stake (PoS). PoS, favored over its predecessor for its relative energy efficiency, lets users validate transactions on the network by temporarily depositing, or staking, a certain amount of their tokens in return for rewards.
But ETH holders have been hesitant to stake their coins, with only 8% of eligible tokens in the Ethereum ecosystem staked to date, according to StakingRewards. Still, Ethereum must encourage staking so it can complete the transition to PoS with an adequately secure network.
This incentive gap has created an opportunity for liquid staking providers, including Lido, which announced today that it received a $70 million investment from Andreessen Horowitz.
Lido is the market leader for Ethereum liquid staking, representing over 80% of market share in that space, recent estimates show. Assets staked on Lido are worth over $10 billion USD at today’s prices, and are split across 76,000 individual crypto wallets, Lido co-founder Konstantin Lomashuk told TechCrunch in an interview.
To understand why assets on Lido grew by 15,000% in 2021, according to Lomashuk, it’s important to first understand why some crypto holders do not choose to stake their coins.
First, staking is considered to be less risky, and therefore less lucrative from a return standpoint, than investing in some decentralized finance (DeFi) products. What’s more, staked ETH is effectively “locked up” and cannot currently be withdrawn, making higher-return DeFi strategies look all the more attractive to many yield-seekers.