As long as some networks have “demonstrated economic activity,” Lido Finance intends to provide its ETH staking services throughout the L2 network.
Lido Finance, a cryptocurrency staking service provider, has announced plans to increase staked Ether (stETH) support throughout the Ethereum Layer 2 network.
The Lido team announced in a blog post on July 18 that it would initially allow Ether staking through bridges to L2s using wrapped stETH (wstETH). Users will soon be able to stake directly on L2s without having to “bridge their assets back” to the Ethereum mainnet in the future.
The team mentioned that it had already merged its bridged staking services using Argent and Aztec before announcing partnered L2s. It also mentioned that the following group of alliances and mergers would be revealed over the next weeks.
The Lido team stated that once the fully-fledged L2 staking support is prepared, it will initially begin with L2 powerhouses Arbitrum and Optimism before branching out to additional L2s with enough “demonstrated economic activity.”
The team hailed this change as allowing users to stake ETH with lower costs while also obtaining “access to a new suite of DeFi applications to amplify payouts,” given that L2s are intended to minimize the cost of Ethereum transactions.
Layer 2 Networks Increasing in Economic Activities
L2s come in a variety of forms. We anticipate that in the future, both general-purpose Layer 2 networks and networks tailored for particular purposes will account for a significant amount of economic activity and transaction volume, if not the majority.
According to the report, “Each of these networks will profit from or require staking solutions to support their users’ economic activity and ensure that all users of Ethereum ecosystem networks have the option to participate in securing Ethereum.”
Based on total stETH value and ranking second overall in terms of total value locked (TVL) on the decentralized finance (DeFi) network, Lido is one of the major providers, with more than 4.2 million ETH staked on the platform, valued at over $6.5 billion.
Lido offers stake payouts on a variety of different assets, including Polkadot (DOT), Solana (SOL), and Kusama (KSM). However, it is largely used for its ETH staking services, which produce annual rates of about 3.9 percent.
Once a customer puts ETH into the platform, a tokenized copy of their deposit is created as stETH, which may be used to access other DeFi protocols’ borrowing or yield services.
The desired ratio of stETH to ETH is 1:1. The peg, however, notably dropped out to 0.95 of 1 ETH in May following the $40 billion Terra ecosystem collapse.
The asset’s de-pegging carries a little risk to long-term hodlers and stakers. Anyone who takes on leveraged wagers against the asset, however, risks the serious risk of liquidations. It has been claimed that now-defunct companies like Celsius Network & Three Arrows Capital were prominent stETH users.
The peg is currently at the proper ratio, and Lido provides a 1:1 exchange for ETH and stETH. It appears that depositors can get back more stETH worth than the amount of ETH they deposit via the decentralized exchange aggregator 1inch, which also provides a 2.36 percent discount to mint stETH.