The liquid staking sector, with $16.68 billion in TVL, now surpasses DeFi lending and bridges as the second-largest crypto sector according to Defillama data. The upcoming Ethereum Shapella upgrade, scheduled for April 12, has fueled existing interest: Liquid staking tokens, along with Ether (ETH) itself, see an increase in value as the upgrade date approaches.
The Shapella upgrade technically combines two major modifications: Shanghai, which brings changes to the execution layer, and Capella to the consensus layer. Among other improvements, both updates will allow ETH holders to retrieve their staked ETH and stake additional amounts of ETH without being tied to an indefinite lockup period, as is the case currently.
As one of the consequences, experts expect mass adoption of staking and that Ethereum will remain the largest proof-of-stake network in terms of staked capitalization, although a possible ETH price increase is debatable.
What is liquid staking?
Liquid staking provides crypto users with a wide range of flexibility. It allows them to stake tokens on a blockchain network in order to earn rewards while at the same time maintaining the liquidity of their staked assets. By using liquid staking, token holders can participate in various DeFi activities — lending, borrowing or providing liquidity — without having to unlock or unstake their tokens, as they receive a “receipt” token (liquid staking tokens or LSTs) that represents their staked assets. This provides greater adaptability and maximizes both staking and DeFi activities.
In addition to asset mobility and yield farming, liquid staking provides fast access to funds, inter-chain security, and stability of the underlying network, as it increases the amount of staked capital, which is important for proof-of-stake networks to validate transactions.
New heights in liquid staking on Ethereum
Liquid staking platforms on Ethereum, mainly developed to mitigate the network’s restrictive lock-up and staking conditions, are expected to remain in the spotlight due to providing ETH-staking risk reduction. This may increase the competition between such platforms and force them to innovate and add new useful features for the public.
Such innovations include the reward-bearing token model used by Swell — a noncustodial ETH liquid staking protocol — which is different from rebasing tokens used by other liquid staking platforms.
Swell’s token, swETH, represents ETH staked on Ethereum, including staking rewards. Without changing the number of tokens, its value increases as rewards are earned. It keeps track of the value of the staked ETH and the rewards compared to the original amount of staked ETH.
Swell also plans to contribute to DeFi adoption with vaults. Vaults will allow users to stake ETH and gain swETH to easily access different DeFi strategies with a single click. Vault rewards will be collected in different tokens and can be sold back to the deposit asset and be compounded. Similar to an App Store, the Swell DApp will act as a gateway to multiple income strategies.
AMA with Swell on April 12, 2023
Tune in on April 12 at 10 AM EST for the latest Cointelegraph AMA session with Daniel Dizon, founder of Swell. Find out what will be the impact of the Shapella upgrade on the overall DeFi space, what the future of liquid staking holds, and how Swell takes advantage of liquid staking mechanics.
Join the conversation, share your thoughts and ask questions.
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