Liquid Staking Tokens (LSTs) are becoming increasingly popular and have already grown to a market worth of approximately $17 billion since Ethereum’s Merge. These tokens are quickly becoming the preferred choice over regular Ether (ETH) due to their many advantages.
Staking ETH now allows holders to gain a roughly 4% annual yield, depending on factors like network activity, total ETH staked, number of validators, and the value captured by maximum extractable value. This yield is significant because ETH is a generally stable asset, unlike many other cryptocurrencies which are more volatile and require investors to consider both yield and the potential of the asset’s price to either appreciate or depreciate.
This new ability to stake ETH and earn a yield creates a dilemma for liquidity providers (LPs): Should they provide liquidity and hope to earn fees, or should they stake the ETH and earn a surefire yield? LSTs solve this dilemma for LPs, unlocking the value of staked assets and making them liquid “receipt” tokens that can be traded, used as collateral in DeFi protocols, and offer a much lower cost of entry than regular ETH staking.
The advantages of LSTs over ETH are becoming increasingly obvious. Any LP who chooses to supply ETH to an automated market maker (AMM) instead of an LST is sacrificing roughly 4% APR, making LSTs a much more attractive option for those looking to maximize their yield.
The transition to LSTs has already begun, and it is likely to come swiftly. Since Ethereum’s Merge, the amount of ETH deposited with the Lido protocol has increased by more than 30%, and the Swell Network, which launched in mid-April, has already staked more than 43,000 ETH.
The shift to LSTs could mean that they replace ETH entirely as the go-to token in the crypto space. This would be a positive development for the industry, as it would attract new users and be the breath of life this industry needs.
Bob Baxley is a core builder for the Maverick Protocol. He worked previously for Apple as a senior manager of design and product management and as a director of design for Yahoo. He holds an undergraduate degree from the University of Texas at Austin and a master’s degree from Stanford University.
