Ethereum: With Merge approaching, how lucrative is staking on Lido?

Lavina Daryanani
Source: The Block

Alongside active income, crypto investors are always searching for passive income-generating options, and Staking has emerged as one of the go-to options. Ethereum 2.0 allows HODLers of ETH to stake their tokens and fetch returns.

Read More – Ethereum: Is this Altcoin helping or profiting from ETH’s staking structure?

Lido and its dynamics

With time, Lido has garnered the spotlight in the staking sphere. Lido, as such, is a staking service that allows users to deposit Ethereum, receive the stETH in return, and earn a percentage in yield. 

Lido adds the deposited staked tokens to Ethereum’s Beacon Chain, which helps validators secure the network. Lido Finance is the home to the largest locked ETH on the Beacon Chain.

Per data from Dune Analytics, more than 31% is locked of the total staked Ethereum on Lido’s smart contracts. The same translates to approximately $4.1 million ETH tokens. Other prominent LIDO competitors like Rocketpool, Stakehound, and Ankr have a negligible say in comparison.

Currently, Lido offers a 4.48% return to users for their locked tokens.

Source: Dune Analytics

L2 expansion

Less than a day back, the staking platform revealed its plans to expand its staked Ether support across the Ethereum L2 networks. Elaborating on what this means for stakers, the official blog post read,

“For Ethereum stakers, this means staking with lower fees and access to a new suite of DeFi applications to amplify yields.”

Essentially, the platform will begin by supporting wstETH bridging and staking on Layer 2 networks. It also plans to allow the staking of ETH held by users on L2 networks directly without the need to bridge assets back to the Ethereum mainnet. The platform will do it by taking advantage of the relatively lower network and protocol fees.

The Ethereum Merge Factor

Ethereum’s Beacon Chain Merge with the mainnet is set to happen in September this year, and the amount of staked ETH may continue rising with time. This essentially comes with a drawback. More staking would translate to reduced yields since more people will receive the block subsidies. Resultantly, each depositor will likely receive a much lesser percentage of the rewards.

On the macro frame, the APR is already on a downtrend. While a few analyses suggest that things might improve after the Merge, most others contend that the number will only get lower. So, if that’s the case, depositors would lose the incentive to keep their tokens locked and be triggered to free-float them into the market. If dumped en-masse, then Ethereum’s price has a high chance of taking a hit. Alongside the withdrawal, network security might also be threatened.

It is also interesting to note that Lido provides staking rewards on a handful of other assets, like Solana, Polkadot, and Kusama. The returns on such tokens are much higher than Ethereum and currently stand at 5%, 16.5%, and 21.5%, respectively. So, if the returns remain lucrative, then there are chances of funds being diverted towards these assets from Ethereum.

So, like any tale, even the staking one has a flip side, and placing bets on the Merge comes with its own inherent risks.

Read More: Ethereum Merge to take place mid-September; Details