Before getting started with Lido Staked ETH (stETH), it is important to understand 2 things: Beacon Chain and Lido. The “beacon chain” is the foundation upon which the Ethereum ecosystem hopes to become secure, sustainable, and scalable. As of now, the Beacon Chain operates in parallel with the mainnet and uses proof of stake. When the merger occurs, the Ethereum mainnet will move to proof-of-stake. Ethereum staking currently requires locking a minimum of 32 ETH until the blockchain is upgraded to the new standard – Ethereum 2.0.
This is where Lido comes in. It is a liquid staking platform that allows users to stake any amount of ETH. In return, users get stETH – a derivative token.
What is staked ether?
Staked Ether (stETH) is a token that you get on a 1:1 basis when you stake with Lido.
stETH represents your staked ETH and you can use your stETH to earn yields and lending rewards like regular ETH.
Your stETH balance is updated daily and is calculated as follows: initial deposit + staking rewards – penalties
Are you wondering what these sanctions are? ETH validators are penalized if they fail to validate transactions.
stETH can be considered a promissory note – holders of stETH can exchange their tokens for an equivalent amount of ETH – 6-12 months after the upgrade or merge is completed.
The price of stETH has fallen below that of ETH for many reasons:
- The fear created by the crash of the Earth project.
- THE stop withdrawals by the leading crypto lender Celsius.
- Three Arrows Capital, a financially distressed crypto hedge fund, is actively selling its stETH holdings.
- THE Curve The liquidity pool for switching between stETH and ETH does not have adequate liquidity.
Given that Celsius has over $400 million (roughly Rs. 3,141 crore) in stETH deposits, investors fear that it will have to sell its stETH, which would create additional downward pressure on stETH.
At the time of writing, stETH has fallen to 0.95 ETH, a 5% reduction against ETH.
Some of the potential risks are:
- You could lose your capital if the Lido smart contract is exploited.
- ETH 2.0 is experimental and under development. You could lose your capital if bugs are exploited.
- You could lose your capital if ETH 2.0 fails to gain adequate adoption.
- About 20 percent of the shares are held by multiple multi-signature accounts.
- You could lose your capital if the signers lose their key shares, get hacked, or go rogue.
You could lose your capital due to wagering penalties.
Remember that stETH can only be withdrawn when transfers and smart contracts are implemented on Ethereum 2.0.
Ethereum co-founder Vitalik Buterin believes that since Lido Finance owns 1/3 of the staked ETH, this could “theoretically disrupt the Ethereum network after the merge.”
The project must have a large, vibrant, active, engaged and positive community with a fair share of fanatics. The main social platforms are Discord, Facebook, Instagram, LinkedIn, Medium, Reddit, Telegram, Twitter and YouTube.
Rohas Nagpal is the author of the Future Money Playbook and the chief blockchain architect of the Wrapped Asset Project. He is also an amateur boxer and retired hacker. You can follow him on LinkedIn.
Cryptocurrency is an unregulated digital currency that is not legal tender and is subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV will not be liable for any loss resulting from an investment based on any recommendation, forecast or other perceived information contained in the article.