Liquid staking – Weekly fundamentals #60

Scope of analysis.

• Our analysis captures the vast majority of the liquid staking projects on Ethereum, representing ~90% of the total amount of ETH staked through LSD products. The projects included in this article, listed in the order of market dominance, are: Lido (stETH), Coinbase (cbETH), Rocket Pool (rETH), Frax (frxETH), StakeWise (sETH2), Ankr (ankrETH), and ether.fi. Coinbase's cbETH is the sole centralized exchange LSD in the dataset.
• For liquid staking projects that have deployments on multiple chains, we're currently including only Ethereum data. This is relevant for projects like Lido and Ankr, which are both deployed across several chains. However, for both of them, Ethereum-based staking represents the vast majority of their respective assets staked.

General trends.

• Ethereum's recent Shapella upgrade de-risked ETH (staking) by allowing for withdrawals. The liquid staking market sector is, in addition to Blockchains (L2), among the fastest growing market sectors on Token Terminal. The market sector was growing fast already before the successfully executed Shapella upgrade (April 12th), which arguably reduced the risks associated with ETH as an investment, and ETH as a yield-earning asset.
• As a result, it is expected for the ETH staking ratio (assets staked / circulating market cap) to grow and reach parity with other PoS chains. Currently, the staking ratio for ETH sits at ~15%, which is relatively low compared to other PoS chains. For example, Solana and Avalanche currently boast staking ratios of over 60%. Given the higher market cap of ETH, ~$235B at the time of writing, we could see multibillion dollar growth in assets staked over the coming quarters.

Market leader.

• Lido has established itself as the current market leader within the liquid staking market sector. Despite its already large size, Lido continues to grow at a faster rate than its closest competitor, Coinbase, further solidifying its dominant position in the market.

ether.fi’s growth.

• ether.fi has experienced a significant growth in TVL, with 30d growth surpassing 400%. ether.fi launched its EarlyAdopterPool contract in February 2023, and even without staking functionality, it has managed to increase its total value locked (TVL) to an impressive $42.3 million.
  • To gain a comprehensive understanding of the factors driving ether.fi's growth, we recommend tuning in to our 15-minute fundamentals episode, featuring a discussion with ether.fi's Founder & CEO, Mike Silagadze.

Growth.

• Frax Ether has emerged as the fastest-growing player in the liquid staking market sector, primarily attributable to the high APY yields provided by its LSD product. The increased yield stems from additional returns generated through Curve and Convex liquidity mining rewards.
• ether.fi's rapid growth in daily active users (DAUs) is likely driven by reward farming (as the product is not live yet). A notable development is ether.fi's 30d increase in DAUs and its current second-place position in overall active users.
• It is important to acknowledge that withdrawals are currently not incorporated into the DAU metric.

Market dynamics.

• With the successful implementation of the Shapella upgrade, the liquid staking market sector is poised for accelerated growth and heightened competition. As a result, we might see liquid staking projects implement lower take rates, which means that they could be paying out a greater share of the rewards to stakers in the future.

Capital efficiency.

• Projects with the same amount of assets staked may still generate a different amount in fees. In general, fee generation correlates with the amount of assets staked. But some projects may capture more MEV rewards than others, and thus generate more in fees. If the project's nodes have poor uptime and get slashed, this affects fee generation in a negative way.
• Lido maintains its market-leading position as the top fee generator. Lido continues to maintain its position as the market leader and top fee generator in the liquid staking market sector, although we currently do not track fees for all projects.

Different take rates.

A few examples of take rates for the leading liquid staking projects:

• Lido: 10% fee on generated rewards, split 50/50 between node operators and the DAO.
• Coinbase: 25% fee on generated rewards.
• Frax Ether: 10% fee on generated rewards.
• Rocket Pool: 14% fee on generated rewards charged by node operators, with no protocol revenue capture.
• StakeWise: 10% fee on generated rewards.