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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
Michael Cohen
October 10, 2023
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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