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  • ETH liquid staking nears $20B – but what’s the risk?

ETH liquid staking nears $20B – but what’s the risk?

Maximize rewards & protect Ethereum with liquid staking

Liquid staking presents key benefits for ETH holders hoping to maximize yield while maintaining transferability. However, users should understand its unique risks – and the importance of decentralizing this rapidly emerging ecosystem.

A brief primer on Ethereum staking

ETH staking enables users to earn rewards while securing the world’s second-largest blockchain network.

  • However, staking has critical barriers that require validators to run software and lock more than 32 ETH in the process.

  • Stakers are then unable to transfer funds while these capital, operational, and technical requirements may deter new participants.

Liquid staking has emerged as a popular solution – surpassing $20B in 2023.

Layer3 as the portal to liquid staking

Explore different liquid staking protocols such as:

Benefits of liquid staking

  • Unlocking the barrier to entry, users with any amount of ETH can stake and mint a freely transferable token in the process.

  • Popular liquid staking pools such as Lido and Rocket Pool have made staking seamless and broadly accessible with easy-to-use applications.

  • By minting liquid tokens representing staked ETH + rewards — users can freely stake while maximizing yield across the DeFi ecosystem.

Risks of liquid staking

  • Exchange rate risk (liquid tokens may trade lower than fair value)

  • Liquid token smart contracts may be vulnerable

  • Rewards can be slashed if the protocol falls short

  • Dominant protocols may pose centralization risks

Recently, Lido’s dominance has raised alarm bells in the crypto community. Danny Ryan, who co-developed Ethereum’s staking protocol, recently warned that “Lido is a Systemic Risk”. Granted, Lido has earned its standing by its pioneering innovation and ease of use.

However, it’s in all Ethereum users’ best interest to explore different liquid staking providers – and promote decentralization in the process.

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