Lido’s market dominance and Ethereum decentralization post-Merge

After a successful third testnet merge, Sept. 19 was recently proposed as the tentative target date for the Ethereum Merge. Ethereum is set to fully transition from proof-of-work (PoW), the original consensus mechanism used by the Bitcoin network, to the more energy-efficient proof-of-stake (PoS) used by younger networks like Solana and Cardano.

“The Merge won’t solve Ethereum’s scaling concerns on its own. It is just the beginning of a road map to achieve future scaling upgrades,” Jacob Blish, head of business development at Lido, shared with Cointelegraph.

The staked Ether (ETH) on the Beacon Chain, the PoS network that mirrors Ethereum’s transactions, is expected to remain locked up for at least six months after the Merge is completed. After the Merge, staked ETH liquid tokens will start benefiting from transaction fees and maximal extractable value, meaning yields will go up.

There has been a lot of hype around the Merge. It is the single biggest event in crypto for a very long time, Rocket Pool founder Darren Langley told Cointelegraph, adding, “The lockup period is testing liquid staking protocols now but this is mainly due to macro conditions and the ongoing Centralized Finance (CeFi) drama. Once it blows over, liquid staking will explode.”

Currently, ETH staking yields are earning close to a 4% annual percentage rate (APR), with just over 10% of the ETH supply being staked, according to StakingRewards.

Lido’s liquid staking service

The launch of the Beacon Chain created a need in the ecosystem for a decentralized liquid staking solution that would compete against centralized exchanges (CEX) and could be used within decentralized finance (DeFi) for lending, borrowing and more. 

The staking service offered by Lido has gained popularity as the first protocol to implement a liquid staking derivative on Ethereum through the minting of the stETH token. Contrary to popular belief, stETH is not meant to be pegged to ETH. As Blish shared:

“Staked ETH issued by Lido is backed 1 to 1 ETH but the exchange rate isn’t pegged. It can fluctuate and trade at a premium or a discount as the secondary market forces dictate the price. This doesn’t affect the underlying backing of stETH.”

Lido’s first mover advantage to launch a liquid staking product has helped the protocol move ahead with more DeFi integrations for stETH as well as other multichain-staked products for Solana, Polygon, Polkadot and Kusama. The team recently announced that stETH will expand to layer-2 solutions to further their DeFi integrations.

The protocol attracted liquidity to the Curve pool with incentives in the form of additional rewards of the Lido token (LDO) and a referral program to further its growth strategy and consolidate itself as a temporary winner within the liquid staking space. 

When compared to other protocols in the DeFi ecosystem as a whole, Lido stands out as the only product that…