Lido's Troubling Slide Amid Ethereum Staking Challenges

By: Isha Das

Lido's once-vast dominance in the Ethereum staking market has hit a four-year low, with its market share dropping to 25%. This decline is correlated with the ongoing depegging issues faced by stETH, the liquid staking token issued by the platform. The depegging scenario has caused a stir in the crypto community and affected the confidence of Ethereum stakers worldwide.

A recent analysis by Tom Wan of Entropy Advisors, which utilized data from Dune Analytics, reveals that Lido has seen a 5% drop in its staked ETH volume over the past half-year. This rate marks the lowest levels since March 2022. Concurrently, the platform is grappling with a swelling withdrawal queue, growing to more than 235,000 stETH set to exit, marking the highest tier observed since the withdrawal function was activated.

Many observers suggest that these trends have been fueled by high-profile users and stakeholders withdrawing their assets. Names such as Justin Sun and various investment firms, along with different staking services like EtherFi, are reported to have significantly impacted this queue by unwinding their Ethereum positions.

Despite the current challenges, Lido remains the largest staking service provider for Ethereum, holding over nine million ETH. Even with the increasing exit demands, it maintains a large lead over competitors such as Binance and Coinbase. Furthermore, Lido reports an impressive $33 billion in total value locked, offering a 2.8% annual percentage rate (APR).

The stETH token's struggles coincide with mounting WETH borrow rates on Aave, a prominent decentralized finance platform. This has heavily impacted leveraged staking strategies, prompting unwinds that drive intense sell pressure on ETH, further exacerbating the stETH-ETH depeg. Mark Zeller from Aavechan attributes much of this movement to whale activities, escalating the platform's utilization rates, which consequently made borrowing costlier.

Amidst this turbulence, it is worth noting that Tom Lee's BitMine has made noteworthy strides in the sector, becoming the largest corporate holder of Ethereum, with a reserve of 566,776 ETH valued at $2.1 billion. BitMine’s strategic positioning emphasizes both the challenges and opportunities within the Ethereum ecosystem as major players continue to navigate its dynamic landscape.