The cryptocurrency market saw DeFi in the summer of 2020. Here, decentralized financial applications such as Compound and Uniswap turned Ether (ETH) and Bitcoin (BTC) into yielding assets through yield farming and liquidity mining rewards. Ether’s price nearly doubled to $490 as total liquidity across DeFi protocols surged to $10 billion.
In late 2020 and early 2021, COVID-19-induced quantitative easing kicked in across global markets, leading to a bull market that lasted almost a year. During this time, the price of Ether rose nearly 10 times his price, peaking at over $4,800.
The UST-LUNA crash, which began in early 2022, exacerbated the painful cooldown journey after an euphoric bull run ended. This caused the price of Ether to drop to his $800. A ray of hope finally arrived in Q3 as the market experienced a positive rally led by the Ethereum merger narrative.
The move to a green proof-of-stake (PoS) consensus mechanism has been a big step forward. This event also reduced Ether inflation after the merger. ETH peaked above his $2,000 during the run-up to the September 15, 2021 merger. However, the bullish momentum quickly faded and the Merge turned into a rumor-buying news-selling event.
A similar bullish opportunity could be brewing for Ether, as the upcoming Shanghai upgrade, scheduled for March 2023, is gaining market attention. The upgrade will finally allow withdrawals from currently locked Ethereum staking contracts. This upgrade greatly reduces the risk of staking ETH.
Provides opportunities for liquidity staking protocols to grow. Governance tokens in some of these protocols have surged since the beginning of the new year as the hype builds.
The upgrade could push these tokens towards last year’s Merge highs. Additionally, the Ethereum staking space is still in its infancy, providing a market opportunity for the growth of these protocols.
Low percentage of staked Ether
Currently, 13.18% of the total Ether supply is staked on the Beacon Chain. This is low compared to other Proof of Stake (PoS) chains like Cosmos Hub (ATOM) with a staking rate of 62.5% and Cardano (ADA) with a staking rate of 71.8%. %, and Solana (SOL) is 71.4%. The reason for Ethereum’s low staking rate is that staked Ether is locked in its current state, but this will change in his March.
The upcoming Shanghai upgrade will include a code known as EIP 4895. This will enable the withdrawal of Beacon Chain Stake Ether and his 1:1 exchange of Stake Ether and Ether. After this update, Ethereum’s staking rate should reach parity with other major PoS networks. A significant portion of it may migrate to liquid staking protocols.
Risk mitigation of liquid staking derivatives
Liquid staking protocols such as Lido and Rocket Pool allow Ether holders to stake without running validator nodes. Ether is pooled, so one user does not have a minimum staking threshold of her 32 ETH (worth about $40,000). People can bet part of their Ether, reducing the barrier to entry for betting.
The protocol also enables the provision of liquidity for staked assets. DeFi contracts offer derivative tokens (for example, Lido’s stETH) in exchange for staked Ether on a Proof of Stake (PoS) network. Users can trade stETH while earning yields from staking contracts.
The use of liquidity staking protocols is likely to increase as Ethereum’s staking rate rises after the March update. Liquid staking protocols currently account for 32.65% of total staked Ether. I’m here. Due to the above advantages, the market share should be close to or even above the current level after Shanghai’s upgrade.
Governance tokens in liquid staking protocols could also benefit from an increase in rock value, similar to DeFi tokens, which benefited from an increase in total rock value (TVL) during the latest bull market.
How is the LSD Governance Token performing ahead of Shanghai?
Lido DAO (LDO)
Lido DAO is a leader in the liquidity staking space with higher annual yields and market share than other protocols. Lido commands 88.55% of the total Ether staked on these protocols.
As a proxy for evaluating protocols, consider the amount of Ether staked. Again, we found Lido’s market cap to staked Ether ratio to be the most competitive.
The weakness of the project’s token economics is that LDOs are governance tokens. It does not give owners a share of the yields or fees generated. Additionally, the token has additional inflation from the investor’s token unlock to his May of this year.
Technically, the LDO token has risen above the short-term resistance at around $1.17 with heavy buying. Bulls are likely to take advantage of the hype surrounding the Shanghai upgrade to target $1.80.
The token has been sharply short in the futures market after its recent 26% price gain since Jan. 1. LDO perpetual swap funding rates have turned sharply negative, with a short squeeze leading to further uptrend. We are offering an opportunity.The current support levels for LDO are $1.17 and $1.
Rocket Pool (RPL)
Rocket Pool is similar to Lido, but smaller. The platform’s market cap to staked Ether ratio is 5x that of Lido, so it can be expensive.
Nevertheless, RPL tokens have additional utilities beyond governance as insurance tokens for users. receive.
The September 2021 RPL Ethereum Merge high was $34.30. Since the beginning of 2023, its price has increased by 10%, last trading at $22.40. If buyers succeed in building support above the $20 level, the RPL could reach last year’s high of $30, achieved before and after the Ethereum merge.
Anchor (ANKR)
Ankr is a blockchain infrastructure provider that provides API endpoints and runs RPC nodes in addition to staking solutions. Like LDOs, ANKRs are used for governance purposes only.
The price of the token has remained relatively flat over the past few days. Ankr’s market cap to staked Ether ratio is on the high side, on par with Rocket Pool which is a negative sign.
Still, if the hype about the Shanghai upgrade builds up, ANKR could reach a high of $0.05 in August 2021. The recent breakdown level of $0.03 will act as a resistance for buyers. The token is currently trading at around $0.015.
Stakewise (SWISE)
Stakewise offers the highest staking yield of 4.43%. Its governance token has a relatively lower market cap to staked Ether ratio than RPL and ANKR, and is cheaper than RPL and ANKR.
However, token distribution is skewed against individual investors and founding teams, who account for 46.9% of SWISE’s total supply. According to Nansen’s data, wallets identified as “smart money” have been slowly accumulating his SWISE since April 2021.
SWISE’s Ethereum Merge hits a high of $0.23 and could be a target for buyers. Support is near the 2022 lows of $0.07.
Shared Stake was red flagged as the protocol was suspected of insider abuse and the token price dropped 95% in June 2021. The high staking return of Shared Stake compared to others is also a surprising detail. of. Meanwhile, Cream Finance has discontinued his Ether staking service.
The upcoming Ethereum Shanghai upgrade provides an opportunity for the liquid staking space to grow. Lido DAO is the clear leader in this field with an optimal market price. The de-risking of ETH staking and the hype around the event could lead to a series of rises pushing the price of LDO and other liquid staking protocols back to last year’s highs of his Merge.
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