The total amount of Ethereum (ETH) staked on Lido Finance, one of the many liquidity staking protocols available, has risen steadily over the past few years. Surprisingly, revenue accrued by the platform (compared to staking rewards distributed) remains comparatively low.
Lido Finance Revenue Isn’t Growing As Fast As Expected
Looking at Token Terminal data shared on October 19, the blockchain analytic platform observed that while staking rewards paid, counted as “fees” by Lido Finance grew from less than $10 million in early 2021 to over $60 million in June 2023, revenue has grown at a much slower pace. To illustrate, Lido Finance’s average revenue is roughly less than $5 million during this period.
Lido Finance fees versus revenue| Source: Token Terminal
Overall, Lido Finance is a liquidity staking protocol that supports the staking of multiple proof-of-stake (PoS) coins like Ethereum (ETH) without necessarily locking them up. Users can concurrently earn staking rewards while accessing their hard-earned ETH–or any other coin supported.
The protocol issues another derivative, stETH, for every ETH staked to achieve this. This token can be freely traded on exchanges. It can even be used as collateral for users keen on taking trustless loans on supported platforms.
Ethereum recently shifted to be a proof-of-stake blockchain to be greener and conserve the environment. This transition was a boon for protocols that supported the first smart contract platform to confirm transactions and remain secure, especially after the activation of Shanghai in April 2023.
The Shanghai upgrade allowed Ethereum validators to withdraw their staked ETH for the first time, permitting them to use alternatives, of which Lido Finance, looking at total value locked (TVL), was preferred. As of October 19, Lido Finance had a TVL of $13.913 billion, most of it being assets on Ethereum.
Lido Finance TVL| Source: DeFiLlama
Ethereum Centralization Concerns: How Will This Be Addressed?
Lido Finance makes staking more accessible to everyone while concurrently enhancing liquidity. However, the revenue generated appears low versus the amount of staking rewards distributed to stakers, most of whom are from Ethereum. Part of the revenue the network generates is also distributed to LDO holders and node operators. Whether the liquidity staking protocol plans to increase the 10% fee charged to increase revenue earned remains to be seen.
Presently, there are concerns that Lido Finance’s role on Ethereum could lead to centralization. Ethereum has been accused of being “centralized,” mainly in how it is built. Critics assert that the reliance on its co-founder, Vitalik Buterin, for endorsement and guidance could slow down development in the future.
Zerodha founder and CEO Nithin Kamath has hailed the Indian capital market infrastructure and regulations and said the entire system does not get enough credit for being among the best globally. In a LinkedIn post that has gone viral, Kamath talked about the crypto world and that brokers and exchanges can act as banks in most markets.
He added, “In India, all securities are held by the customer at the depository. All unused funds are sent back monthly/quarterly and one client’s funds can’t be used to fund another. In most markets, brokers can hold customer securities and funds indefinitely and use them any way they want.”
The Zerodha founder went ahead and commended the Securities and Exchange Board of India (SEBI) for their efforts aimed at protecting the interests of the retail investors by reducing risks and making markets safer.
Kamath’s comments come after a deal between crypto exchanges FTX and Binance collapsed. The deal was touted as an emergency rescue in the world of cryptocurrencies as investors pulled their money back from risky assets.
Binance said in a statement accessed by news agency Reuters, “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.”
After this, FTX CEO Sam Bankman-Fried said in a message to employees, “I’m working, as quickly as I can, on the next steps here. I wish I could give you all more clarity than I can.”
Meanwhile, cryptocurrency market-cap saw a decline of 7.82 per cent to $835.16 billion. Key tokens such as Bitcoin and Ethereum also fell to $16,612.50 and $1,181.61 respectively. Market cap of Bitcoin and Ethereum stands at $319.67 billion and $145.09 billion at the time of writing this story, according to coinmarketcap.com.
The luna price, which was trading as high as $100 per luna just last month, crashed to near zero this week—causing the algorithmic stablecoin UST to completely lose its peg to the U.S. dollar—amid a $1 trillion crypto crash that sent the bitcoin price down by over 20%.
Now, the chief executive of UST and luna developer Terraform Labs, Do Kwon, has pitched a revival plan that could see ownership in the network distributed across UST and luna holders—causing the luna price to surge over 1,000% as traders bet the project could recover.
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The chief executive of Terraform Labs Do Kwon pitched a “revival plan” for luna and the algorithmic … [+] stablecoin UST following the blockchain ecosystem’s collapse.
“While UST has been the central narrative of Terra’s growth story over the last year, the Terra ecosystem and its community is what is worth preserving,” Kwon wrote in a post on a Terra discussion forum, adding the Terra community “must reconstitute the chain to preserve the community and the developer ecosystem.”
The reconstitute—effectively a restart of the terra blockchain—would create 1 billion tokens to be distributed among various community stakeholders, with 40% going to luna holders before the UST de-pegging, 40% to go to UST holders “pro-rata at the time of the new network upgrade,” 10% to luna holders before the chain halt, and 10% to the “Community Pool to fund future development.”
The blockchain underpinning luna and UST was shut down multiple times this week to “prevent governance attacks” following “severe [luna] inflation.”
Terraform Labs and the Luna Foundation Guard, tasked with supporting UST, this week printed several billion luna tokens—increasing the luna supply from 340 million last week to 6.5 trillion—in a failed attempt to maintain the UST peg to the dollar.
The luna price has fallen by almost 100% over the last week, sparking a bitcoin and crypto crisis.
Coinbase
“Terra needs a community to continue to grow and make its blockspace valuable again—the only way to do this is to make sure that token holders before the attack commenced, the most loyal community members and builders, stick around to keep providing value,” Kwon wrote, adding, the ecosystem will not survive “in its current state.”
In a follow-up tweet thread, Kwon said he’s “heartbroken” about the collapse of luna and UST but said he’s confident the “community will form consensus around the best path forward for itself and find a way to rise again.”
Others in the crypto community have also suggested the project could still survive in some form with Binance chief executive Changpeng Zhao, often known simply as CZ, saying there has been “progress” made.
“Luna blockchain resumed, no more minting,” CZ posted to Twitter. “And deposits, withdrawals and trading resumed. Trading is important for existing holders.”
The luna and UST collapse this week came amid a bitcoin, ethereum and wider crypto market downturn that made UST vulnerable, with some speculating there may have been an orchestrated attack on the stablecoin.
“The pullback in general markets created the conditions for an attack on UST, which was inherently fragile,” Cory Klippsten, the founder and CEO of bitcoin-buying app Swan Bitcoin, said in a Telegram message, adding, “the effects of the unwind are wide reaching, and the ultimate magnitude still unknowable.”
Bitcoin, ethereum and cryptocurrency prices have swung wildly over the last week as Russia’s invasion of Ukraine sends shockwaves through global markets—adding to fears of a “cataclysmic market shift.”
The bitcoin price fell under $35,000 per bitcoin this week before rebounding sharply. Ethereum and other major cryptocurrencies have been equally as volatile as “extreme fear” grips investors.
Now, traders are braced for severe gyrations after Russia was kicked off the world’s main international payments network SWIFT, with a former Russian Central Bank deputy chairman warning of “catastrophe” on the Russian currency market.
The bitcoin price has fallen sharply in recent months with the Russia invasion of Ukraine causing … [+] further volatility for bitcoin, ethereum and other cryptocurrencies.
SOPA Images/LightRocket via Getty Images
“It means there is going to be a catastrophe on the Russian currency market on Monday,” Sergei Aleksashenko told Reuters. “I think they will stop trading and then the exchange rate will be fixed at an artificial level just like in Soviet times.”
On Saturday, the U.S., the E.U., the U.K., France, Germany, Italy, and Canada announced in a joint statement they would penalize Russia’s central bank and exclude some Russian banks from the SWIFT messaging system, used for trillions of dollars worth of transactions around the world, and designed to “prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”
It’s thought Russia holds about $300 billion of foreign currency offshore—enough to disrupt money markets if it’s frozen by sanctions or moved suddenly to avoid them, according to a Credit Suisse report reported by Bloomberg.
Bitcoin, ethereum and crypto prices had recovered along with stock markets toward the end of this week as traders came to terms with Russian sanctions. However, it’s thought the latest measures could trigger fresh volatility, with soaring commodity prices and inflation fears rattling investors in recent weeks.
Bitcoin’s extreme price volatility at a time when the gold price has climbed has undermined the popular narrative that bitcoin has begun acting as digital gold, a so-called safe-haven asset that investors flee to in times of perceived risk—though some bitcoin and crypto investors remain confident.
“In contrast to major stock indices, bitcoin hasn’t actually recorded a lower low [this week],” Mikkel Morch, executive director at digital asset Fund ARK36, wrote in an emailed note. “This small detail could be of great significance in terms of the talk around bitcoin as a safe haven asset.”
Despite the bitcoin, ethereum and crypto price recovery, fears persist that the bitcoin price could fall back again.
“The situation is still volatile and the $40,000 levels are still the resistance,” Morch added. “Unless bitcoin meaningfully breaks this barrier, revisiting the range lows or even the $30,000 support is still very much on the table in the short term.”
“If the situation in Ukraine escalates even more bitcoin may fall below $30,000 as investors leave for defensive assets,” Alex Kuptsikevich, senior financial analyst at FxPro, said in emailed comments, pointing to reports Russia could use cryptocurrency to circumvent sanctions. “Otherwise, the country will not survive the growing sanctions pressure from Western countries.”
The bitcoin price fell to lows not seen since a major crypto crash last month as fears mount over … [+] the knock-on effects of Russia’s invasion of Ukraine. Ethereum and other cryptocurrencies have also swung wildly.
Coinbase
However, others in the bitcoin and crypto community think its unlikely bitcoin could be used by Russia to evade global sanctions.
“The suggestion that Russia could use bitcoin to evade sanctions is mostly an exaggeration by the media,” Cory Klippsten, the chief executive of bitcoin-buying app Swan Bitcoin, said via Telegram.
“Technically, Russia could use bitcoin given its permissionless, open nature, but there are methods for agencies to trace bitcoin transactions. It’s important to note that bitcoin is a technology that can be accessed by anyone, no matter if you agree with their actions or not.”
Almost $14 million has so far been donated to the Ukrainian war effort through anonymous bitcoin donations, according to researchers at Elliptic, a blockchain analysis company.
On Saturday, the official Twitter account of the Ukraine government posted: “Stand with the people of Ukraine. Now accepting cryptocurrency donations. bitcoin, ethereum and USDT”—a stablecoin pegged to the U.S. dollar. Addresses for two cryptocurrency wallets collected millions of dollars in bitcoin, ethereum within just a few hours.
“Across the globe, demand for bitcoin continues to increase as the need for a decentralized, censorship-resistant store of value becomes more evident by the day,” added Klippsten.
