Direct from the desk of Dane Williams.
When you take a look at the top 10 by market cap, there is 1 project that is not like the others.
9 of the 10 projects are either cryptocurrencies native to their own blockchain or simply the massive collateralised stablecoins (which I don’t think should count, but whatever).
But 1 is different.
Can you tell which project I’m talking about?
Of course I mean Lido Staked Ether (stETH) and in today’s blog post I’m going to go down the rabbit hole to answer all your most frequently asked questions surrounding the project.
Think of this as a lite version of a regular LeoFinance crypto guide.
Let’s go.
Lido Staked Ether (stETH) is a liquid token that represents your share in the Ethereum 2.0 staking pool managed by Lido DAO.
When you stake Ethereum (ETH) on Lido, you receive stETH in return.
This token is minted in real-time, is pegged 1:1 to your stake in the pool and can be traded or used in DeFi applications like any other ERC-20 token.
When you stake ETH with Lido DAO, your assets are pooled together with other users' assets to form a larger staking pool.
Lido DAO then runs a node that participates in the Ethereum 2.0 staking process using the combined assets from the pool.
This means Lido DAO maintains the infrastructure necessary for staking, including the node, validator software and security measures while you earn daily rewards.
stETH represents staked ETH.
It is simply a token backed by actual ETH staked on the Ethereum 2.0 network by Lido.
In contrast, ETH is the native cryptocurrency of the Ethereum blockchain.
stETH and LDO are both related to the Lido DAO project in different ways.
stETH is the token that represents the staked Ether in the Lido protocol.
While LDO is the governance token of the Lido DAO that allows you to participate in governance decisions such as voting on changes to the Lido protocol itself.
The significance of stETH is that it affords you the benefits of staking Ethereum, without the traditional drawbacks.
Typically, when you stake ETH, your assets are locked up for an extended period meaning you’re unable to use or transfer them until the staking period ends.
With stETH however, you’re able to trade your staked assets in DeFi applications, providing you with total flexibility and liquidity.
No, there is no early withdrawal fees or lock-up period on your stETH.
The process of withdrawing is as simple as converting your stETH back into ETH and withdrawing it to your Ethereum wallet.
Obviously, it is important to note that when you withdraw your staked stETH, you will no longer receive rewards for your share in the staking pool.
The main risks associated with staking stETH include the potential for loss of funds due to smart contract bugs or attacks.
Other risks include general market volatility and the risk of slashing if the validator node behaves improperly (having your rewards confiscated if the node messes up)..
Your staking reward is calculated based on the amount of ETH that is staked through Lido.
The more ETH that is staked, the higher your staking rewards will be.
Yes, there are fees associated with staking stETH with Lido.
These fees are used to cover the costs of running the Lido platform and are deducted from your staking rewards.
They’re a cost of doing business.
There is no minimum amount of stETH required to get involved.
However, you need to take into account the network fees associated with sending ETH to the Lido smart contract.
Yes, stETH can be traded on most major cryptocurrency exchanges.
Its price is always closely pegged to native ETH and gives you full liquidity and flexibility as a holder.
Lido ensures the security of your funds through a variety of measures, including secure smart contract design, regular security audits and a robust insurance policy.
While Lido does everything they can, you’re still risking your assets with a third party and that’s something you have to live with.
Lido DAO's model, which relies on a group of centralised node operators to manage the staking process, does pose a significant risk to the decentralised nature of the Ethereum network.
This is because a small group of node operators could collude to compromise the integrity of the network.
Sneaky sneaky…
You’re not going to trick me into giving you investment advice.
After reading this lite Lido Staked Ether guide, you have all the information you need to make an informed decision on your own.
Best of probabilities to you.
