Lido Finance plans to offer its ETH staking services over the L2 network as long as some networks have “demonstrated economic activity.”
A cryptocurrency staking service provider, Lido Finance, has revealed ambitions to expand the Ethereum Layer 2 network’s support for staked Ether (stETH).
In a blog post published on July 18, the Lido team stated that it would initially permit Ether staking across bridges to L2s utilizing wrapped stETH (wstETH). Users will never need to “bridge their assets back” to the Ethereum mainnet to stake on L2s directly.
Before introducing paired L2s, the team mentioned that it had already unified its bridge staking services using Argent and Aztec. Additionally, it stated that the following partnerships and mergers would be made public during the ensuing weeks.
According to the Lido team, when the full-fledged L2 staking support is ready, it will initially start with L2 heavyweights Arbitrum and Optimism before expanding to other L2s with adequate “demonstrated economic activity.”
Given that L2s are designed to reduce the cost of Ethereum transactions, the team lauded this development as allowing users to stake ETH for less money while also gaining “access to a new suite of DeFi applications to amplify rewards.”
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Layer 2 Networks’ Economic Activities are Growing
L2s can take many different shapes. We believe that in the future, if not the majority of economic activity and transaction volume will be accounted for by both general-purpose Layer 2 networks and networks designed for specific uses.
Each of these networks will benefit from or be required to adopt staking solutions, according to the research, to promote the economic activities of their users and ensure that everyone who uses Ethereum ecosystem networks has the choice to take part in protecting Ethereum.
Lido is one of the largest providers with more than 4.2 million ETH staked on the platform, valued at more than $6.5 billion, and ranks second overall in terms of total value locked (TVL) on the decentralized finance (DeFi) network.
The assets Lido offers stake payouts on are Polkadot (DOT), Solana (SOL), and Kusama (KSM). However, it generates annual rates of roughly 3.9 percent and is mostly used for its ETH staking services.
When a user deposits ETH into the platform, a tokenized replica of that deposit is made as stETH, which may be used to access the borrowing or yield services of other DeFi protocols.
The ideal stETH to ETH ratio is 1:1. In May, however, after the $40 billion Terra ecosystem collapse, the peg noticeably plummeted to 0.95 of 1 ETH.
De-pegging the asset poses a small risk to long-term holders and stakers. However, those who place leveraged bets against the asset run the substantial danger of liquidations. It has been asserted that significant stETH users included now-defunct businesses such as Celsius Network and Three Arrows Capital.
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The peg ratio is correct, and Lido offers a 1:1 exchange for ETH and stETH. The decentralized exchange aggregator 1inch also offers a 2.36 percent discount to mint stETH, so it looks that depositors can get back more stETH than they put up in ETH.