Lido Finance, a crypto staking service provider, has announced plans for expanding staked Ether support in the Ethereum Layer two (L2) ecosystem.
The Lido team stated in a blog post on July 18 that they would first support Ether staking via bridges between L2s using wrapped STETH (wstETH). It will eventually allow users to directly stake on L2s without the need to “bridge their assets back” to Ethereum mainnet.
The team said that it had integrated its bridged stake services with Aztec and Argent before the announcement. The team stated that it would reveal the next set of partnerships and integrations in the coming weeks.
The Lido team stated that once the L2 staking support system is fully operational, it will initially start with Arbitrum and Optimism L2 heavyweights before moving on to other L2s that have sufficient “demonstrated economic activities.”
The L2s are intended to lower the cost of Ethereum transactions. This move, according to the team, will allow users to stake Ethereum with lower fees and gain “access to a new suite DeFi applications to increase yields.”
There are many types of L2s. We expect that in the future, large amounts of economic activity and transaction volume would migrate to general-use and purpose-specific Layer 2 networks.
It stated that each of the networks would benefit from or require staking solutions to support users’ economic activities. This will ensure that all members of Ethereum ecosystem networks are able to participate in securing Ethereum.
Lido claims that it has more than 4.2 million Ethereum staked on its platform, which is worth approximately $6.5 billion. This makes it one of the biggest providers of total stETH and second overall for total value locked (TVL), in decentralized finance (DeFi).
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Lido offers staking rewards for a variety of assets including Solana, Kusama, and Polkadot, but it is primarily used to provide ETH staking services that offer an annual yield of about 3.9%.
After a user deposits their ETH to the platform, a tokenized copy of that deposit is minted as stETH. This token can then be used for borrowing or yield services using other DeFi protocols.
stETH is pegged at a 1:1 ratio to ETH. The peg was originally intended to be 0.95 of 1 Ethereum in May after the Terra ecosystem collapse of $40 billion.
Long-term stakers and hodlers are not at risk from the depegging. Anyone who has leveraged against the asset runs the risk of liquidation. Three Arrows Capital and Celsius Network are two examples of defunct companies that have been identified as major users of stETH.
The peg was at the right ratio as of this writing. Lido offers a 1:1 exchange for Ethereum and stETH. The partnered decentralized exchange aggregator 1inch offers a 2.36% discount on mint stETH. This means that depositors can get more stETH value than they deposit through 1inch.