In this article, we will conduct an in-depth analysis of the liquid staking protocol Lido. Currently, AAX is one of the only centralized exchanges to list the native token of Lido (LDO). At the time of writing, LDO is listed on the AAX spot market against the USDT pair. If you want to trade LDO, be sure to place your trade on AAX.
What is Lido?
Lido is a liquid staking solution for Ethereum (ETH). The Lido staking solution allows users to stake their ETH while circumventing conditions such as asset locking requirements. Currently, users’ ETH funds are locked in preparation for ETH 2.0 and will remain so until the launch of the new mainnet. However, with ETH2.0 seeing regular release date pushbacks, this transaction release could take years. The primary issue we identified with standard ETH2.0 staking is that users can only stake in multiples of 32 (ETH). Therefore, at current prices, the minimum staking amount is approximately $150,000 USD. Lido removes this barrier established by Ethereum.
|Cryptocurrency||Number of coins||USD value|
When users stake their ETH on the Lido platform, they receive stETH. The stETH received matches their staked Ethereum on a 1:1 ratio. This allows users to further put their ETH to use by participating in on-chain activities, such as lending their Lido-staked cryptocurrencies.
Further Staking Information
Originally, Lido was created to become an Ethereum staking solution. However, with time, the platform added the LUNA and SOL networks. This new development enables Lido users the option to stake multiple cryptocurrencies. Currently, Lido holds $9.360,711,000 USD of staked assets. Currently, most of the staking is performed with Ethereum tokens.
Current Lido Staked
The addition of LUNA and SOL to Lido follows the same principles as staking ETH with Lido. However, as expected, each network possesses varying interest rates, as shown below.
Current Lido Interest Rates
For the cryptocurrency world, annual percentage rates (APR) rates of 3% – 7% are low. However, as mentioned previously, users can put their Lido-wrapped SOL (stSOL), stLUNA, or stETH to work in other ways. For example, the decentralized platform Orca currently has multiple ways in which users can earn additional APY on their st(X) cryptocurrencies, as shown below.
|Aquafarm Pair||Current Liquidity||APR||Double~Dip?||ORCA p/d ($1,000)|
|stSOL / wstETH||$23,250,000||46.2%||Yes||0.03|
|wstETH / USDC||$2,020||4.76%||No||0|
|stSOL / wLDO||$516,000||5.11%||No||0|
|stSOL / USDC||$7,470 USD||21.9%||No||0|
As depicted, the favorite Aquafarm Pair is clearly stSOL / wstETH (Lido-wrapped Ethereum) with approximately 45X more liquidity than the second-most popular pair stSOL / wLDO. The significant financial gain enabled through stSOL and wstETH (Solana wrapped Lido (st) ETH) is clear to see.
In the example below, we can see the financial difference between staking your ETH or SOL compared to using the stSOL / wstETH pool. The example below is shown with a $10,000 entry and the presumption of price continuation.
Orca Rewards = h
stSOL / wstETH APR = q
Average ETH staking pool reward rate = 5.16% = x
Average SOL staking pool reward rate = 6.8% = y
Average SOL / ETH reward = b
Total APR = a
h(10) x 365 = 109.5
1 ORCA = $16.49 USD
109.5 x 16.5 = $1,805 USD
18.05% = yearly APR from ORCA rewards (no compounding)
q + 18.05 = 64.25% = a
(x + y) / 2 = b
a ~ b = 58.17%
58.17% = $5,817 USD
The example above clearly shows that there is a significant financial benefit in searching for st(X) opportunities. To be exact, this example demonstrates that there is a $5,817 USD difference over 365 days with a $10,000 USD investment.
We have taken a look at the potential financial advantages of using st(X) cryptocurrencies. Now let’s take a look at the cryptocurrency LDO, the native token of the Lido DAO.
Lido is a Decentralized Autonomous Organisation. This means that it is a transparent organization managed by encoded computer programming rules rather than through traditional centralized corporate mechanisms currently ruling the world. With no central authority, a governance token is required in order to pass proposed platform amendments and proposals.
LDO is the native utility token of the Lido DAO. The LDO token does the following:
- Provides DAO governance rights
- Governs which parties are Lido node operators
- Manages fees & distribution.
LDO has a maximum supply of 1,000,000,000 tokens with the circulating supply currently being 60,827,830 LDO. This means that only 6.08% of the maximum supply is circulating.
In the figure below is the makeup of the total LDO supply.
Overall, 64% of these tokens will be vested over a one year period. From a tokenomics analysis standpoint, this is highly concerning. The inflation rate of LDO in its second year will be extremely high, meaning that significant buy pressure will be required in order to maintain LDO price.
Historic Price Action
Currently, LDO is ~42.7% from its ATH of $7.30 achieved on August 20th 2021. The all-time low of LDO occurred on March 27, 2021, at a price of $0.50 USD. With major LDO inflation set to begin at the start of 2022, it seems unlikely that LDO will achieve a much higher price value than $7.30 USD over the coming year. However, it should be noted that SOL has had major inflation fears between 2020-early 2021, with many predicting a price collapse. This collapse did not occur and SOL is currently up 47,227% from its ATLs.
Current Technical Analysis
The current LDO / wETH technical analysis suggests that we will see sideways price action in the medium term. LDO is situated within the most prominent historical resistance and support zones. Breakout from either resistance zone or support zone will likely occur in Q1 2022.
Lido / LDO Conclusion
Lido-wrapped cryptocurrencies such as stSOL and stETH allow users to put their cryptocurrencies to further use, enabling a cryptocurrency to reach its full financial potential. The Lido platform represents the future of cryptocurrency staking and will likely be integrated into mainstream cryptocurrency use in the years to come.
In regards to the LDO token, it seems unlikely that LDO will perform exceptionally well towards the tail end of the current bull run. Additionally, the LDO token will have extremely high inflation in 2022. This is problematic as the cryptocurrency bull run will likely come crashing down at some point in 2022. The result could be major bearish price action for LDO, with a potential retest of all-time lows.
From current cryptocurrency trends, market focus to recent technological advancements, the following bull run may result in a shift in focus to decentralized autonomic organizations (DAOs). From the Ethereum DAO hack in 2016 to now, we have seen tremendous technological advancements, with some of the brightest minds in the world focusing on DAO development. With Lido, it is clear who represents ‘cryptocurrency heavyweights’ as DAO members:
- ParaFi Capital
- Semantic VC
- Stani Kulechov (AAVE)
- Banteg (Yearn)
- Kain Warwick (Synthetix)
In the next cryptocurrency bull run, experts have hypothesized that DAOs may be the NFTs of 2021, with LDO at the forefront, provided that current development trajectory is maintained.
All in all, it is worth keeping an eye on Lido / LDO. Even if the token performs poorly over the coming year, this does not mean it always will. After all, volatility in the cryptocurrency industry is to be expected.