Cryptocurrency
One of the biggest bets in the cryptocurrency world is on the independently managed decentralized finance platform Lido Finance.
About $10 billion, or 3.22 million Ethereum coins, have been deposited into the Decentralized Funding Protocol in anticipation of the successful completion of the long-awaited Ethereum update.
The years-long program review, referred to as the consolidation process, which will end later this year, should significantly reduce energy use, ultimately boost performance, and possibly even greater returns, for what is billed as the most important blockchain network.
The big bet is made through a fairly common crypto practice known as staking, which gives owners a way to earn passive income without having to sell their tokens.
Deposited coins are used to help validate transactions and secure the network in exchange for rewards based in part on the amount of new tokens minted and fees collected.
This practice is popular among users of leading exchanges such as Coinbase, Kraken and Binance, which collectively have around 2.5 million Ethereum coins on their platforms.
Lido, a decentralized stakes project launched in December 2020, is outperforming the sector's largest, by offering a reward to Ethereum owners. A token called “stETH” is associated with the value of the cryptocurrency, and it can be used in other decentralized applications, whether to earn rewards by providing liquidity in money market protocols, or borrow against it in the decentralized finance lending markets to get more “Ethereum.” To boost deposit bonuses.
risk element
There are over 700,000 STE tokens currently under the Aave decentralized lending project, according to data from blockchain tracker site Nansen. Depending on how much risk the STE holder is willing to take, the rewards for borrowing Ethereum for the token on AVI could, in theory, be unlimited.
While the leveraged deposit bonuses raise the APR to more than 3.9%, which was initially earned on Lido through betting, the huge wins are not without risks.
If the merger is delayed, and STE holders are in a hurry to exchange their coins for Ethereum on the open market, the token may run the risk of not being pegged to the coin, potentially causing its value to fall.
Gordon Liao, chief economist at Uniswap Labs, said that the company behind the popular decentralized finance protocol of the same name, if Ethereum is not updated as widely expected, the value of deposited Ethereum could be less than 1.0 Ethereum.
There is also the additional price risk associated with trading in the secondary market for deposited Ethereum users, as it is possible to delink Ether, in the scenario where users lose confidence in the upgrade or deposit project.”
Lido said the risk is small. If a large number of people try to sell before the merger, those with long positions in Ethereum can offset the price difference by selling Ethereum and buying STE, bringing the prices of the two tokens back to the original price level, according to Konstantin Lomashuk, a founding member of Lido. , in an interview with Bloomberg, who added that the token’s high level of liquidity allows it to handle any increase in selling pressure without losing its correlation for an extended period of time.
Lido encourages STE holders to place their tokens on its decentralized Curve Finance platform, which contains far more tokens than any other platform. In return, STEth owners receive additional rewards in the form of unique Curve CRV tokens and Lido's original LDO token. The LDO token can also be used in the governance of LIDO by a decentralized autonomous organization, or DAO.
In a written response through a representative, Ali Yahya, general partner at venture capital firm Andreessen Horowitz, said: “LIDO is working to remove barriers to both retail and institutional investors to deposit Ethereum and other Proof of Stake assets from other solutions.
A16z announced in March that it had invested $70 million in Lido and bet a portion of the a16z Crypto's Ethereum holdings in the protocol. Other large companies that have chosen to participate in Lido include crypto hedge fund Three Arrows Capital and crypto bank Nexo, according to a Lido representative.
It is now mostly about watching developments around the merger unfold. On Wednesday, one of the leading Ethereum software developers said that while the process is going well, updates will likely happen after June. This is later than many observers expected.