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Ether staking surge helps small players chip at Lido’s dominance: ‘A good thing’ for DeFi

Ether staking surge helps small players chip at Lido’s dominance: ‘A good thing’ for DeFi
Rocket Pool and Frax Ether are growing faster than industry leader Lido
  • Ether liquid staking providers Rocket Pool and Frax Ether grew 38% each over the past month, outpacing industry leader Lido.
  • Rocket Pool credits its recent Atlas upgrade as a key driver behind the increase, while Frax Ether’s high staking yields may be helping drive adoption.

The amount of Ether staked through liquid staking providers Rocket Pool and Frax Ether jumped, outpacing the growth of the industry leader, Lido.

The Ether staked by DeFi users via Rocket Pool and Frax soared 38% each over the past month, DefiLlama data shows. That outpaces a 5% increase in Ether staked through the dominant industry player, Lido.

The data is a sign that investors are opting for smaller players to stake their Ethereum, in part to chip away at Lido’s dominance. Any one player having such weight in the market threatens Ethereum’s decentralisation and heightens the risk of bad actors wrenching control.

Domothy, a pseudonymous researcher at the Ethereum Foundation, told DL News that he hopes that Lido’s recent move to enable staking withdrawals on May 15 “brings Lido dominance down as people seek to diversify into other pools or start solo staking.”

“This is definitely a good thing in terms of security and decentralisation,” Domothy said.

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Since Ethereum’s Shapella upgrade, which for the first time allowed those staking their Ether to withdraw it from the network’s staking contract, the amount of Ether staked has soared.

Lido currently holds the title as the biggest single Ether staker, accounting for 30% of all staked Ether. Its dominance has stirred unease within the DeFi community, as many argue that concentrating a large portion of staked Ether in one place hurts Ethereum’s decentralisation.

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Despite Rocket Pool and Frax Ether growing at a faster pace than Lido, they still trail in terms of total staking deposits. Over the past month, Lido’s Ether deposits exceeded $600 million, compared to $460 million for Rocket Pool and $140 million for Frax Ether.

Liquid staking protocols stake depositors’ Ether and give them placeholder tokens, called liquid staking derivatives, in return. The main advantage of these liquid staking derivatives is that users can earn Ether staking rewards while also using their funds in other DeFi protocols, enhancing capital efficiency.

Rocket’s Atlas upgrade

Rocket Pool credits the protocol’s recent Atlas upgrade as a key driver behind the increase in Ether staking deposits.

Typically, stakers wanting to run an Ethereum validator need to stake a minimum of 32 Ether. However, Rocket Pool’s Atlas upgrade has reduced this requirement to eight Ether for users, with Rocket Pool covering the remaining 24.

“[Atlas] further reduced our already low barrier to entry for node operators and greatly boosted protocol efficiency,” Rocket Pool’s marketing manager Nick Ashley told DL News. “The growing list of powerful DeFi integrations is making our liquid staking token rETH an increasingly attractive option too,” he said.

As for Frax Ether, the protocol’s high staking yields seem to be attracting new investors.

Investors can currently earn about 7% annually on their staked Ether through Frax, compared to 5.2% through Rocket Pool and 5.4% through Lido, according to DefiLlama data.

The integration of Frax Ether by other DeFi protocols could also be boosting its adoption. For instance, the decentralised exchange Curve Finance, which recently launched its crvUSD stablecoin, has selected Frax Ether as the first asset that users can deposit to mint crvUSD.

NOW READ: DeFi’s biggest exchange Curve Finance takes a shot at stablecoins

Domothy anticipates that the surge in Ether staking post-Shapella will continue.

“The fact that withdrawals are now possible helped de-risk staking, so the more conservative crowd are more comfortable,” Domothy said. “Those who were waiting to exit have by and large finished doing so, now the beacon chain validator count is up only.”