The renewed focus on decentralization, the robust growth of the DeFi liquid staking sector, and institutional investment could benefit LDO tokens in the long term.
Liquid staking has skyrocketed in popularity over the past year, thanks in part to the launch of the Ethereum Beacon Chain and the inability of Ethereum (ETH) participants to withdraw their tokens until the consensus layer is fully deployed.
As a result, Lido (LDO) has established itself as a leader in liquid betting. Lido is one of the main staking protocols for several popular tokens that allows token holders to earn additional profits by using their assets to operate in the decentralized finance (DeFi) space.
LDO/USDT 4 hour chart. Source: Trading View
Data from Cointelegraph Markets Pro and TradingView shows that the LDO price rose throughout March before entering a consolidation phase in early April. The broader market is currently in a strong downtrend, but the rise in the staking sector and the upcoming Ethereum “merger” could still lead to bullish results for LDO.
Expanding Liquid Staking Opportunities
The price of LDO reversed its trend towards the end of February, due in part to the addition of Polygon liquid staking (MATIC) to the Lido protocol, developed in collaboration with Shard Labs.
At the time of writing, MATIC has wagered over $14.5 million on Lido and is generating an 8.7% return. The protocol currently allows ERC-20 MATIC tokens to be staked, and stakers receive stMATIC in return, which can be used in DeFi protocols on the Ethereum and Polygon network.
Additional new assets, along with an increase in the amount of Ether staked on Lido, lifted the total value of the protocol to an all-time high of $20.83 billion on April 5, and that number is currently 18, according to the data. $3 billion from Defi Llama.
The total amount locked on Lido Finance. Source: Defi Lama
New partnerships and integrations increase Lido’s market share
Institutional investment and integration with other protocols also paint a positive picture for LDO. The project recently received a $70 million investment from Andreessen Horowitz (a16z).
In addition to the $70 million investment, a16z also announced that it will list some of its Ether holdings on the platform to make things easier for institutional investors.
Lido also benefited from several integrations in March and April, including the addition of ether (stETH) to Aave (AAVE) lending pools. Staked Solana (stSOL) has also been integrated into the Solana (SOL) ecosystem across multiple platforms, including Raydium, Friction Finance, and several protocols adding support for Staked Terra (stLUNA).
Related: The Many Layers of Crypto Staking in the DeFi Ecosystem
Increasing decentralization could attract investors
Another factor that could help improve the future prospects of LDO is the desire of developers to improve the decentralization of the protocol.
One step in this process is the introduction of distributed validator technology (DVT), which brings validators into independent committees that collectively propose and approve bans, reducing the risk of underperformance or misconduct by a single validator.
This helps simplify and speed up the process of adding new node operators (NOs), as new operators can be associated with a group of NOs that are widely trusted to mitigate potential risks.
The second enhancement includes the ability to bid based on a node operator score derived from multiple metrics, which helps operators maintain optimal performance.
The latest improvement is the creation of new mechanisms, such as longer locks and veto power to a quorum of stETH holders, to reduce the risk of a takeover and prevent unplanned changes to Lido.