Analyzing Lido’s stETH After the Shapella Fork: IntoTheBlock
CMC Research

Analyzing Lido’s stETH After the Shapella Fork: IntoTheBlock

Created 1yr ago, last updated 1yr ago

IntoTheBlock examines the implications of the Shapella hard fork on ETH staking, its influence on stETH market dynamics, and its role in reshaping Ethereum's staking industry.

Analyzing Lido’s stETH  After the Shapella Fork: IntoTheBlock

The staking industry underwent a big shift following the Shapella fork, as it enabled both individuals and institutions to withdraw the ETH that they had staked on the beacon chain. In this article, we will be analyzing how the ability to withdraw ETH staked on the beacon chain has impacted the market share, market cap and liquidity of stETH, currently the biggest liquid staking derivative of ETH. We will examine the potential implications of this development and how it could shape the future of Ethereum and the wider cryptocurrency market.

After the Ethereum Shapella upgrade, users have started withdrawing their staked ETH from the contract, resulting in a net withdrawal of around 374k ETH from validating the network. What's even more intriguing is that the net deposits made by staking providers have undergone significant changes post-upgrade, defying some expectations.

The proportion of new staking deposits since the Shapella fork that have been attributed to liquid staking derivatives (LSDs) has been lower than their previous figures, indicating a lag in their performance. While Lido has experienced a decline in deposits since the upgrade, recording a net outflow of -44,323 ETH, it still holds the position of the largest staking entity in the network, with 31.5% of the ETH staked through stETH.

In contrast to Lido, its competitor RocketPool has seen positive inflows of 28,847 ETH since the upgrade. This may be due to the fact that RocketPool also underwent an upgrade on April 18, allowing users to become validators with just 8 ETH (previously 16 ETH), which could have contributed to increased interest and activity on the platform.

Frax, a new and emerging competitor in the market, has introduced a different mechanism compared to Lido or RocketPool. This mechanism consists of a two token model. Despite being relatively new, Frax has seen positive inflows of 24,852 ETH since the upgrade.

Stakefish and, two institutional staking services, have experienced the most significant growth in deposits. This could be attributed to the fact that many institutional depositors were likely waiting for withdrawals to be enabled, to reduce the risk of their capital being locked.

As anticipated, Coinbase and Kraken have been affected by a decrease in their staking services, with their flows experiencing the largest decline. This could be a result of pressure from American regulators in recent months.

Source: IntoTheBlock’s stETH Indicators

Following the Shapella fork, the market capitalization of stETH decreased. However, prior to this decrease, it had reached a milestone of $12 billion for the first time. Over the past year, its supply has increased by 76%, and it has grown 24 times in comparison to its supply two years ago. As a result, stETH's market capitalization has increased to the point where it is now ranked as the eighth largest cryptocurrency by market cap.

Moreover, it is recommended to assess the trading liquidity of an asset before engaging with it. The majority of liquidity for stETH can be located in Curve's pool. Having higher trading liquidity can result in increased safety for users who wish to exit their positions. This suggests that there are more means available for exiting positions. If liquidity is restricted, the market becomes susceptible to vulnerabilities and exiting a position may become more challenging.

Source: IntoTheBlock’s DeFi

The presence of balanced pools indicates that the token is in a healthy state. Balanced pools on DEXes are important because they can provide more efficient price discovery and reduce slippage for traders. The above metric shows that the stETH-ETH pool on Curve has a balanced pool, with a ratio of 49% ETH and 51% stETH.

In conclusion, the Shapella upgrade has had a significant impact on the staking sector. Lido, the largest staking entity in the network, experienced negative flows after the upgrade, while RocketPool and Frax saw positive inflows. Institutional staking services such as Stakefish and have experienced the most significant growth in their deposits. Moreover, it is important to assess an asset's trading liquidity before getting involved, balanced pools for LSD are crucial as they provide a means for exiting positions. Finally, as major players in the Ethereum staking industry, it will be intriguing to observe Lido and stETH's positions in the sector as it consolidates and new methods emerge.

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