Conversations around liquid staking tokens (LSTs) seem to have become more prominent after the Ethereum (ETH) Merge’s conclusion. With LSTs coming into the picture, decentralised finance (DeFi) based staking rewards have seemingly gone up in the ETH ecosystem. It’s believed that as the DeFi landscape progresses, LSTs will create more cryptocurrency-staking prospects for users, especially in 2024. “I believe LSTs are the representation of staked assets on a Proof-of-Stake (PoS) blockchain. In traditional staking, users receive only staking rewards, but the assets are illiquid and locked for a specific period. But in liquid stacking, when users stake their assets, they are given an equivalent amount of LSTs. These tokens can provide liquidity to stakers, allowing them to engage in DeFi activities without the need to unstake their assets,” Saravanan Jaichandaran, co-founder and chief data scientist, bitsCrunch, a blockchain analytics firm, told FE TransformX.
From what it’s understood, the important parts which constitute LSTs are tokenisation, collateral, liquidity, cross-chain, and ownership. Media reports have shown that at a point in time, the amount invested in LSTs went as high as $26 billion. In December 2023, the number reportedly increased which showed an amount worth $30.4 billion being locked in LSTs constituting various blockchains. Going forward, market research suggests that investors should count on three major LST architecture models, namely reward-bearing tokens, which change in value over a given time while the token volume remains the same, rebase tokens, which automatically manage their balance with regards to rewards and deposits through a process called rebasing, and wrapped tokens, which are present in wrapped editions that don’t get subjected to automatic amount changes. “I think LSTs play a role in generating passive income. By allowing users to stake their assets while maintaining liquidity, LSTs offer a balance between earning rewards and having fungible assets. This flexibility is considered important for investors looking to optimise their passive income strategies in the world of DeFi. The key aspects of LSTs encompass liquidity provision, tradability, and exposure to staking rewards. These tokens are understood to serve as a bridge between staking and trading, offering investors the opportunity to participate in both markets,” Sumit Ghosh, co-founder and CEO, Chingari, a Web3.0 live streaming application, specified.
As of January 23, 2024 (12.39 pm, Indian Standard Time), CoinGecko, a cryptocurrency data aggregator, mentioned that the total market capitalisation of LSTs stood at nearly $27.25 billion having a 24-hour trading volume worth approximately $110 million, with the largest gainers being Haedal Staked SUI, Volo Staked SUI, and Aftermath Staked SUI. The aggregator also gave insights for the top-ranking LSTs, with Lido Staked Ether (STETH) at the top at a value of close to $2,345, followed by Rocket Pool ETH (RETH) at nearly $2,570, Frax Ether (FRXETH) at nearly $2,340, Marinade staked SOL (MSOL) at close to $98, and Staked Frax Ether (SFRXETH) at just above $2,500. According to CryptoRank, a crypto data analytics platform, LSTs to keep an eye out in 2024 are Stader (SD), which creates user-based applications to do cryptocurrency staking at various PoS platforms, Rocket Pool (RPL), which is a decentralised ETH staking protocol providing 4.33% annual percentage rate (APR) worth rewards for Ethereum 2.0 staking, Pendle (PENDLE), which is a protocol for tokenisation and future output trading, Flashstake, which allows investors to earn immediate rewards through locking assets for a certain timeline, and Frax Share (FXS), which is an ETH-induced fractional-algorithmic stablecoin mechanism which allows cross-chain interoperability. Reportedly, another class of tokens which is establishing itself on ETH are liquid staking tokens. Data provided by Hashed, a decentralised network, has shown that liquid staking tokens’ market capitalisation crossed $400 million in January 2024, which marked a 400% rise with regards to December, 2023. Sources suggest that three liquid staking tokens are active in the market, namely KelpDAO’s rsETH, Ether.Fi’s eETH, and Renzo’s ezETH, with eight more on the cards for incoming months.
Moreover, future predictions imply that LST-oriented stablecoins and protocols will be crucial for the staking landscape, with expectations also being laid for the EigenLayer mainnet unveiling scheduled for March, 2024. Market experts believe that the next Ethereum upgrade, called the Ethereum Dencun Upgrade predicted to take place in Q1, 2024, will be an important factor for LST-based investments going forward. “We can expect increased adoption as they address liquidity concerns in staking. LSTs will likely become integral to DeFi, attracting more users seeking both staking rewards and trading flexibility. Investors can also diversify their strategies, staking on one platform while using the LST to engage with another,” Edul Patel, CEO, Mudrex, a crypto investment platform, concluded.
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