The Ethereum network’s transition to proof-of-stake has led to the emergence of Liquid Staking Tokens (LSTs). Due to the difficulty of self-staking, many token holders prefer to use service providers like Coinbase or Lido to stake their ether.
Self-staking requires 32 ETH tokens, a validator setup, consistent internet connection, and is just becoming liquid following Ethereum’s Shanghai upgrade. ETH liquid staking tokens solve these problems, enabling anyone to stake ether while keeping their funds liquid.
Liquid staking allows users to stake their ETH (or other tokens) without minimum deposit requirements and their own validator set up. Stakers receive a tradable token that represents ownership of the underlying staked asset, allowing users to remain liquid while earning staking rewards. Users can also purchase LSTs on exchanges like Uniswap, Balancer, and Curve instead of minting new tokens directly from LST protocols.
Firstly, liquid staking providers pool together ETH from depositors. When the 32 ETH threshold is met, the provider will deposit into the ETH staking contract and pair a validator instance with it. Note that different staking providers will have different processes. For example, Coinbase uses an internal validator set, while Lido has an approved set of external validators.
Once the staked position passes the activation queue, validators will receive Ethereum blocks to validate, earning ETH rewards. Staking providers typically charge a fee on staking rewards, generally ranging from 10% to 25%. This provides incentives for validators to act honestly, and provides them with income to upkeep the necessary infrastructure.
Lido Finance is a liquid staking protocol that issues the stETH token. Lido is the most popular staking provider by far, having nearly 30% of market share of all staked ETH. Lido staking’s popularity stems from a number of factors, such as the ease of staking, elevated yields, and depth of liquidity.
Lido’s commitment to maintaining a 1:1 peg between stETH and ETH took the form of LDO incentives given to stETH/ETH liquidity providers. Liquidity providers in these pools received elevated APYs due to the value of LDO tokens, resulting in a deep liquidity base for stETH holders to sell their tokens for ETH when they want to exit their position.
The assurance of liquidity not only attracted potential stakers, but allowed DeFi applications to incorporate stETH into credit markets and yield derivatives. With deep liquidity, lending applications could liquidate collateral confidently. The increase in utility for stETH further fueled demand for the LST.
While Lido is the most popular LST, there are several other competitors that have gained traction over the last 12 months. Here are some stETH alternatives that may be a good fit for you.
After stETH, the next most popular LST is Coinbase ETH (cbETH). Being a publicly listed company and household name for crypto asset trading and holding, Coinbase was able to attract stakers due to its convenience, strong customer base, and brand name. Notably, cbETH fees come in at the high end, charging a 25% cut of yield generated.
By differentiating its product, Rocket Pool became a top liquid staking protocol. When staking services were first incepted, many Ethereans were concerned by centralization risks. If the top staking providers colluded, they could potentially exploit the network by making fraudulent transactions if they had a 51% share of validating power. Decentralizing the validator set was extremely important for ETH holders.
By allowing anyone to become a validator permissionlessly, Rocket Pool was able to do just that. Before they are allowed to use depositors’ staked ETH, validators are required to post 8 ETH and RPL as collateral, ensuring they are positively aligned with Rocket Pool and their ETH depositors. Rocket Pool’s mechanics resonated with many Ethereans, and thus attracted a base of stakers.
Later, Rocket Pool mimicked Lido by similarly incentivizing rETH/ETH pools with RPL tokens, allowing liquidity providers to earn elevated yields, enabling more DeFi integrations and fueling demand.
Frax, a stablecoin protocol, recently launched its own ETH LST product and quickly became the 4th largest LST provider. By leveraging their influence over the Curve ecosystem, frxETH was quickly onboarded onto Curve liquidity pools and had highly incentivized yields.
By having its own USD stablecoin, FRAX, the protocol was also able to incorporate frxETH into its own lending market; holders are able to use frxETH as collateral to borrow FRAX.
The variety of LSTs are undoubtedly confusing for most users. Though Coinbase may be the easiest option for many users, other LSTs on the market offer much higher yields on their liquidity pools. Origin Ether (OETH) offers users a seamless platform to earn heightened rewards from ETH staking.
OETH is an ETH LST, helping users earn the best risk-adjusted staking yields in DeFi. With audited and curated AMO strategies, Origin ensures OETH provides safe and elevated yields for holders. Furthermore, OETH auto-compounds and rebalances assets between strategies, maximizing holders’ ETH rewards and saving them gas fees.
Origin Ether optimizes yield between Lido, Rocket Pool, Frax, and DeFi strategies to earn higher yield than staking on any one of these protocols directly. Users can deposit ETH to the Origin Ether Vault to receive OETH, or swap for OETH directly on Curve.
Thanks to Ethereum’s Shanghai upgrade, withdrawals for ETH stakers are now enabled. However, staked ether is still not fully liquid, and won’t be for several months. Self-stakers are unable to redeem all their ETH, while LST holders can only trade for ETH via liquidity pools. Due to the nature of markets, LSTs do not always trade 1:1 with ETH, causing holders to sell at a discount if they exit. With withdrawals being enabled, however, the LSTs should be able to maintain a more stable ETH peg.
If stakers are concerned about liquidity risks, it is recommended they wait until staked ether is fully liquid. In contrast, many long-term holders are unconcerned by the short-term illiquidity. Coupled with the option to hold LSTs which have high yields, many holders believe staking ETH is worth the risk. OETH provides a uniquely rewarding gateway to ETH staking that caters to the needs of all users.
