Crypto staking service provider Lido Finance has announced plans to extend support for Ether (stETH) across the Ethereum layer-2 (L2) network ecosystem.
In a blog post on Monday, the Lido team indicated that it will initially begin bridging Ether (ETH) to L2s using wrapped stETH (wstETH). Going forward, it will eventually enable users to participate directly in L2s “without having to reconnect their assets” to the Ethereum mainnet.
Regarding the L2s partnership, the team mentioned that prior to the announcement, it had already integrated staking services with Argent and Aztec. She added that the next set of partnerships and integrations will be revealed over the next few weeks.
Once the stacked L2 support is ready, the Lido team notes that it will first start with the L2 Heavy Arbitrum and optimism before expanding to other L2s that have sufficiently “demonstrated economic activity.”
Since L2s are designed to reduce the cost of Ethereum transactions, the team said the move will enable users to share ETH at lower fees while also gaining “access to a new set of DeFi applications to amplify returns:”
“There are several types of L2s. We believe that in the future, a significant portion (if not the majority) of economic activity and transaction volume will move to both public-use and special-purpose Layer 2 networks.”
“Each of these networks will benefit from or need staking solutions to support the economic activities of their users and ensure that all users of the networks of the Ethereum ecosystem have the ability to participate in securing Ethereum.”
According to the Lido website, there are currently more than 4.2 million ETH hostages on the platform, which is worth about $6.5 billion, making it one of the largest providers in terms of total stETH value and second overall in terms of total value locked (TVL) for decentralized finance platforms ( DeFi).
Related: Lido DAO Price Moves Higher as Ethereum Merge Moves One Step Closer to Completion
Lido offers rewards staking on a range of other assets, including Solana (SOL), Kusama (KSM), and Polkadot (DOT), but it is primarily used for ETH staking services, which offer an annual return of around 3.9%.
Once a user deposits ETH into the platform, a token copy of their deposit is poured out as stETH, which can be used for other borrowing or yielding services from other DeFi protocols.
stETH was pegged with an intended ratio of 1:1 to ETH. However, the correlation famously fell to 0.95 from 1 ETH in May during the aftermath of the $40 billion Terra ecosystem collapse.
Disengagement from assets poses limited risks to long-term processors and underwriters. However, it does have the severe risk of causing a disqualification for anyone who takes leverage positions against the asset. Now defunct companies such as Celsius Network and Three Arrows Capital are reported as significant users of stETH.
At the time of writing, the stake is sitting at the right ratio, with Lido offering a 1:1 swap for ETH and stETH. However, the 1-inch partner Decentralized Exchange (DEX) aggregator is also offering a 2.36% discount on Mint stETH, which indicates that depositors can currently redeem more stETH than the amount of ETH they deposit over 1inch.