Lido is a platform built on the Ethereum 2.0 Beacon Chain that allows users to earn staking rewards without locking their ETH. Participants receive Token stETH in a 1:1 ratio, which can then be used across various DeFi services.
In just three months, Lido achieved a record-high Total Value Locked (TVL) of $13.98 billion, surpassing protocols like AAVE and Convex Finance to rank as the third-largest DeFi project. This article explores the reasons behind Lido’s growth and evaluates its usability.
Innovative Tokenomics and Multi-Chain Support
Lido provides staking pool services for Proof of Stake (PoS) blockchains. It currently supports Ethereum 2.0, Terra, Solana, and Kusama. As of early March, Lido’s TVL reached $13.98 billion. Terra accounts for 56% of this total, followed by Ethereum at 41%, with the remaining chains making up a small portion.
The platform integrates with several leading protocols and issues derivative tokens corresponding to each supported blockchain. These tokens provide liquidity for asset holders. Users can stake cryptocurrencies like ETH, SOL, LUNA, or KSM to receive equivalent tokens—stETH, stSOL, stLUNA, or stKSM—while also earning annual yields ranging from 4.5% to 18%.
Lido also has its native token, LDO, used primarily for voting and governance. As of March 1, LDO was priced at $2.08. Unlike the staking derivative tokens, LDO is not listed on major decentralized exchanges, and its price does not directly correlate with Lido’s TVL.
This model sets Lido apart from protocols like MakerDAO or Liquity. While MakerDAO rewards users with DAI for depositing ETH, Lido allows staking of various tokens to receive price-equivalent derivatives along with competitive yields—all independent of LDO’s price performance. This makes Lido a compelling yield-generating staking service.
Diverse Investment Opportunities
Independent staking on Ethereum 2.0 requires users to stake ETH in multiples of 32, which can be a barrier for small investors. Lido removes this constraint by allowing users to stake any amount of ETH.
As of March 1, a total of 1.98 million ETH had been staked. Here’s how users can maximize returns using Lido:
- Stake any amount of ETH to receive stETH tokens in a 1:1 ratio while earning a 4.5% APY. By comparison, depositing ETH on AAVE only yields around 0.2% APR.
Use stETH—which already accrues interest—to provide liquidity on other DeFi platforms like Curve, AAVE, or Convex Finance for additional returns. For example:
- Supplying stETH to Curve can yield around 3% APY.
- Further depositing Curve LP tokens into Convex Finance’s stETH pool can yield an additional ~5.1% APR.
Combining these strategies, users can achieve an aggregate APR between 12% and 14%. Since platforms like Curve and Convex Finance are among the top five DeFi protocols, these strategies involve manageable risk. They also use a single-asset staking model, eliminating liquidation risk.
👉 Explore advanced staking strategies
Strengths and Weaknesses of Lido
Advantages:
- User-friendly and accessible, especially for beginners.
- Enables external contract staking for higher APY.
- Uses a single-token staking model.
Disadvantages:
- Slashing penalties: Lido operates on the Beacon Chain, which implements a slashing mechanism. When a “rebase” occurs, token supply algorithmically adjusts based on staking rewards or penalties within the Beacon Chain. Rebase events take place when oracles report Beacon statistics.
- Variable returns: The stETH balance updates daily at UTC 24:00. Increases result in rewards; decreases lead to loss of stETH. While the base staking APY for ETH is 4.5%, this is separate from Beacon Chain rewards and penalties.
- Gas fees: Transaction costs may be prohibitive for users staking small amounts.
Frequently Asked Questions
What is Lido?
Lido is a liquid staking solution that allows users to stake assets like ETH without locking them up. In return, users receive a derivative token that can be used across DeFi applications while still earning staking rewards.
How does Lido achieve higher yields?
Beyond base staking rewards, Lido enables users to deploy derivative tokens (like stETH) into other DeFi protocols such as Curve or Convex Finance. This layered strategy compounds returns through liquidity provisioning and yield farming.
Is Lido safe to use?
Lido integrates with established, audited protocols. While slashing penalties exist on the Beacon Chain, Lido’s model is designed to minimize risk. Always do your own research and consider transaction fees and amount staked.
What chains does Lido support?
Lido currently supports Ethereum, Terra, Solana, and Kusama. Each chain offers staking with corresponding derivative tokens.
Can I unstake my assets anytime?
Unlike direct staking, Lido offers liquidity through its stTokens. You can trade these tokens on supported markets rather than waiting for an unbonding period.
Does Lido charge fees?
Yes, Lido applies a 10% fee on staking rewards, which is distributed to node operators and the protocol treasury.