Lido is a secure, trustless and permissionless liquidity staking protocol for Layer 1 proof of stake (PoS) networks such as Ethereum 2.0, Solana, Polkadot and more. It offers users the ability to stake their PoS tokens in the Lido pool and receive a tokenized version of their staked assets at a 1:1 ratio.
This tokenized version of their staked assets can be used to earn additional yield from DeFi protocols while also receiving staking rewards from the tokens they have deposited on Lido.
Lido Finance Overview
Platform Highlights
- Largest liquid staking protocol for ETH, SOL, MATIC, DOT & more
- Over $5.8 billion in Total Value Locked across chains.
- 240,000 unique stakers with $250 million in rewards paid.
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What is Lido Finance?
Lido Finance is a decentralized finance (DeFi) platform that provides a way to stake Ethereum (ETH) tokens on the Ethereum 2.0 network. Staking involves holding a certain amount of ETH in a wallet and locking it up in a smart contract to support the network's security and maintenance, in exchange for rewards in ETH. Lido Finance allows users to stake their ETH and receive stETH (staked ETH) tokens, which represent their staked ETH plus the rewards earned from staking.
These stETH tokens can be used to participate in DeFi activities such as lending and borrowing, trading, and liquidity provision. Lido Finance aims to make staking more accessible to a wider audience by removing barriers such as the need for technical knowledge, high fees, and the requirement to hold a minimum amount of ETH to participate. Lido also supports other POS networks like Solana, Polygon and Polkadot.
How Does Lido Work?
From the users end, Lido is simple and intuitive. The process to stake ETH, SOL, MATIC or any other token with Lido can be broken down into 3 simple steps:
- Visit Lido.fi, select the token you want to stake and complete the transaction.
- Receive liquid stTokens and receive rewards in real-time.
- Use your stTokens in DeFi protocols like Convex Finance to earn extra rewards.
On the back-end, it is a little more complicated. Lido works by using smart contracts to deposit and securely store tokens in a staking pool. The pool is then distributed to users in the form of tokenized assets called stTokens. These stTokens can be used as collateral in DeFi protocols such as AAVE, Curve Finance, Convex Finance and more, allowing users to earn additional yields from their staked assets without having to take them out of the Lido pool.
What kind of stTokens are available with Lido?
Lido currently supports stTokens and staking for the following networks:
- Ethereum (ETH) – stETH
- Polygon (MATIC) – stMATIC
- Polkadot (DOT) – stDOT
- Kusama (KSM) – stKSM
- Solana (SOL) – stSOL
Can stTokens on Lido lose their peg?
Yes, stTokens can lose their peg if too many users are trying to redeem their stETH for example at one time. The demand to sell the asset can result in the stETH price dropping lower than ETH, however there is a mechanism within the protocol that incentivizes market actors to arbitrage this temporary depeg for a profit.
Is Lido Staking Safe?
Yes. Lido uses smart contracts to securely store tokens in a staking pool and distribute them to users in the form of tokenized assets. Smart contract audits are conducted regularly and all transactions are cryptographically secured. Additionally, deposits and withdrawals are handled through safe state channels which protect user funds from malicious attacks. Ultimately, this means that you can trust Lido to securely store and stake your tokens.
Where is the Best Place to Earn Yield on stETH?
Convex Finance is currently the best place to earn yield on stETH as it offers highly competitive interest rates for staking rewards. Convex Finance is a DeFi protocol built on the Ethereum that offers boosted rewards to Curve Finance stakers and it allows users to stake stETH in order to earn up to 8.3% APR rewards.
stETH vs rETH vs frxETH vs cbETH - Which is Best?
Lido's stETH is the most popular staking derivative for Ethereum alongside Rocket Pool ETH (rETH), Frax ETH (frxETH) and Coinbase ETH (cbETH). Each staking derivative has its advantages and disadvantages and the best one for you depends on your individual needs and preferences.
Generally speaking, stETH and frxETH are the best staking derivatives for users who want to earn high yields, while rETH is better suited for those looking for maximum security. In our view, stETH has the best balance of high yields, security and decentralization.
On the other hand, if you're happy using a centralized staking provider, Coinbase ETH (cbETH) is also a great option. Coinbase ETH offers staking rewards up to 5% APR and is easy to use, but because it's a centralized provider, you don't have full control over your assets.
Final Thoughts
In summary, Lido is a trustless and permissionless liquidity staking protocol that allows users to stake their PoS tokens and receive a tokenized version of their staked assets, which can be used to earn additional yield from DeFi protocols. Lido currently supports stTokens and staking for several networks including Ethereum, Polygon, Polkadot, Kusama, and Solana. While stTokens can lose their peg if too many users try to redeem them at once, Lido has a mechanism in place to incentivize market actors to arbitrage the temporary depeg.
Lido uses smart contracts to securely store and stake tokens, and offers regular smart contract audits and cryptographically secured transactions. Convex Finance is currently the best place to earn yield on stETH, while stETH and frxETH are generally the best staking derivatives for users who want to earn high yields, and rETH is better suited for those looking for maximum security.
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Co-Founder & former Investment Banker (Finance MBA) turned Full-Time analyst and Head of Research at Buy Bitcoin Bank. Left traditional finance to pursue my interest in digital assets and decentralized finance.
