Liquid staking, a popular strategy for proof-of-stake cryptocurrency owners to earn interest, is gaining traction and becoming the second-largest sector in decentralized finance (DeFi), with support from investor and diplomat Justin Sun. Liquid staking allows investors to earn interest on their digital currencies while also keeping the assets for other purposes through derivative tokens. The upcoming Ethereum Shanghai upgrade next month was expected to stimulate activity in liquid staking. On Saturday, Lido, the largest liquid-staking protocol, saw a $240 million inflow in the form of 150,000 ether (ETH).
The sum was transferred to Lido in a series of transactions by Sun, the founder of the Tron blockchain-based operating system, who continued to feed ether into Lido through Monday. His balance on the platform is now $500 million, making him its largest individual staked ether holder. The investment attributed to Sun is significant, bringing the value of assets in liquid-staking protocols to $14.22 billion as of Monday afternoon in New York. Liquid staking has replaced the lending and borrowing business as the second-largest sector of DeFi, following several high-profile failures of companies in that sphere last year.
After recording the deposit, Lido announced it had activated a new safety feature called the Staking Rate Limit to address possible negative effects of such massive inflows without having to pause deposits altogether. The update decreases the amount of stETH derivative tokens that can be minted at any one time, with a daily cap set at 150,000 ether. It replenishes this capacity at a rate of approximately 6,200 ether per hour.
As the Shanghai upgrade is expected to activate next month, Lido will likely see substantial withdrawals from users who seek to cash out their Ethereum stakes, some of which have been locked up for months. However, the Ether update is expected to encourage liquid staking. Matt Hougan, chief investment officer at crypto index fund manager Bitwise Asset Management, said last month that the percentage of investors willing to stake their ETH would explode once the indefinite lock-up is removed.
Liquid staking is becoming a popular strategy for proof-of-stake cryptocurrency owners to earn interest. With the upcoming Ethereum Shanghai upgrade, liquid staking is expected to gain more popularity. Despite the substantial withdrawals from users expected in the future, this staking strategy is replacing the lending and borrowing business as the second-largest sector of DeFi. With safety features in place, liquid staking protocols like Lido will continue to offer high-yield returns to investors, who may take advantage of the new Ethereum update to engage more actively in the market.