Lido’s stETH Transactions Surge 417% as Community Staking Becomes Fully Permissionless

The staked Ethereum (stETH) from Lido has experienced an unparalleled upsurge in transaction activity, with more than 1,200 large transactions captured in a mere 24 hours—an increase of 417%!

Yet, this sudden uptick is not merely a “by chance” occurrence; it is happening while Lido implements a major shift in its community staking model that was previously semi-permissioned (i.e., only certain users could validate transactions and earn rewards) and is now fully permissionless. These are not your ordinary community governance changes, though. Allowing anyone to stake across Ethereum in a totally permissionless manner could change the dynamics of the Ethereum staking pool and introduces new risks and opportunities.

Expansion of Lido’s Staking Model Drives Market Activity

For a long time, Lido was the big player in Ethereum liquid staking. It allowed people to stake ETH and still have liquidity because of its stETH token. But if you wanted to be a part of Ethereum’s proof-of-stake system and run a validator, it kind of sucked to be you. You had to be a professional-grade operator to have any hope of actually running a node—until recently, when permissions were removed and the path was opened for just about anyone to become an operator.

An influx of new players has come into the Ethereum network, increasing both the liquidity and volume of transactions there. These fresh faces are, in part, what’s generating the surge in big transactions. And who are these new big-timers moving all that ether around? A mix of institutional investment, decentralized finance (DeFi) protocols, and individual users repositioning dentro and fuera of Ethereum in order to exploit the network’s new staking opportunities.

As more validators come into the ecosystem, not only does Ethereum’s security increase, but so does its decentralization. This change represents a big step toward a staking environment that feels more inclusive, and it preserves Lido’s role as a key player in Ethereum’s staking infrastructure.

stETH Gains Additional Utility Through VaultCraft and Aave Integration

Another key aspect driving stETH transaction growth is its integration with VaultCraft, an automated DeFi vault protocol. This new feature utilizes Aave v3.2’s Liquid eModes, introducing an automated 3x recursive staking strategy that optimizes yield for DeFi users.

In Aave v3.2, the eMode is for efficient collateralization. It lets you deposit stETH as collateral and borrow ETH against it. You can take the borrowed ETH and re-stake it in stETH. And then you do it all over again as many times as you want. Indeed, doing it over and over and over again only makes sense if you have automation because doing it manually would get old really fast. Aave has done us all a solid and integrated VaultCraft, Elon Musk doomsayer of an automation solution.

Making recursive staking simple makes stETH more attractive as a returns tool. Why? Because engaging in leveraged staking is a lot less complicated now and thus a lot more appealing to do. You embed stETH further into DeFi by using it in that way, but you also reinforce it as a core DeFi asset because you can use it as collateral and still earn staking rewards.

Institutional Interest and Market Implications

The rapid uptick in sizable transactions indicates that heavy hitters—like institutional investors and significant players in decentralized finance—are taking steps to adjust their holdings. The model of permissionless staking for Ethereum could hardly be a better fit. It opens the doors wide for the types of validators who might not have the capital to stake a lot of Ethereum. Whether this increased accessibility leads to more people participating in the validator space is still up in the air.

stETH can now be integrated into automated vault strategies that run on DeFi protocols like Aave, thanks to the work of Lido and a new service called VaultCraft. Yield-seeking investors can take advantage of this in two ways. First, they can take the stETH that represents their stake in the Lido liquid staking protocol (which consists of Ethereum’s current Proof-of-Stake rewards) and use it within the DeFi protocol for which they’ve set up a VaultCraft strategy. Second, and more importantly, they can supply stETH to that strategy and use it as collateral. Whether by manual or automated means, the staked capital now has a pathway to earn interest and/or yield across various DeFi protocols.

Should the trend of increased staking and transaction activity keep going, the Lido liquid staking ecosystem could see further expansion. This might reinforce its position as the leading staking protocol for Ethereum, probably while also adding to the overall security and decentralization of the Ethereum network.

A New Era for Liquid Staking

Lido and liquid staking have seen a major uptick in transaction activity recently. These staking products have now reached a point where they cater almost entirely to a new kind of user: the permissionless staking permission model has effectively democratized access to Ethereum validation. This is mostly a positive development, I think, but it does raise a few concerns, mostly centered around the question of whether or not staked ETH is still ETH. Is the increase we’re seeing in transaction activity a good thing?

The changes have swiftly elicited a market response, with a single day recording over 1,200 large transactions and a 417% increase in volume. As more validators join the network and DeFi participants incorporate stETH into leveraged strategies, we expect a continued trajectory of growth and adoption.

Liquid staking is developing from its initial role, now serving as a bridge between staking and DeFi. If Lido continues to innovate and diversify its products, it will further solidify its dominance in Ethereum staking and, in turn, could more greatly shape the DeFi landscape.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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