Ethereum underwent the Merge in September last year, and staking has replaced mining. Lido DAO is a liquid staking protocol that started on Ethereum and extended its service to other blockchains. With that being said, Lido is very successful in terms of adoption and attracted many users on Ethereum, Solana, Polkadot, Kusama, and Polygon.

Why has Lido become the no. 1 protocol on Ethereum, and what does the future hold for liquid staking?

Staking solutions are becoming more important

Staking is complicated. Running a validator requires time, knowledge, and the required minimum amount of Ether. There are also costs involved maintaining the validator. Delegating is easier, but it is still not as easily accessible as it could be.

This is different with Lido DAO because all investors have to do is to hold stETH. The stETH token represents the staked Ether in Lido’s smart contract and are therefore a staking derivative. Holding stETH automatically accrues staking rewards that are also paid in stETH. Another feature is the fact that stETH can be used with other DeFi applications. Providing liquidity while receiving a reward for doing so and earning on staking is indeed a sweet deal.

With Ethereum’s shift to proof of stake, solutions like Lido are becoming more important not only for investors, but also for the ecosystem as a whole.

DeFi took a hit during the bear market

The fact that Lido is becoming so important is also reflected by the price of its governance token, LDO. Of course, LDO also took a hit but with a price over $1 at the time of writing, the price is still above over two times of its all-time low.

The fact that Lido even took over Maker DAO in terms of total value locked within the protocols stems from its success, but is also because the market took a blow. Maker is behind the overcollateralized stablecoin DAI. The demand for stablecoins has decreased since the bear market is reducing profits to be made in the DeFi sector.

With a shrinking market cap, the TVL is also decreasing, which made it easier for Lido to take the place from Maker DAO as the no. 1 protocol on Ethereum. It remains to be seen if Lido can defend the title with its narrow lead of $5 million over Makers TVL.