Eth 2.0

Liquid Ethereum Staking is a Lie

Liquid Ethereum staking has risks. It exposes customer funds to known and unknown attack vectors.

Lido is the biggest Ethereum staking provider. Around 50% of all staked Ethereum belongs to Lido. It is a16z funded venture and one of the earliest entity to provide staking services. 

The biggest appeal to stake Ethereum with Lido is that it provides Liquid Staking. What it means is that in exchange of their Ethereum, Lido gives people back their token stETH. stETH maps to Ethereum 1:1 and suppose to grow in value at the rate of percent yield.

But Lido can't redeem stETH to ETH. As Ethereum is staked on Beacon Chain and is not accessible until after The Merge.

For more information about Ethereum Staking Basics. Please see my previous post All About Ethereum Staking.

So how does stETH gets value? stETH is a promise that one day it will be redeemable to Ethereum + network yields captured. So many defi protocols have support for it. People deposit stETH and take loans against them.

In essence price of stETH should never be below ETH. But this peg is broken since over three weeks now. stETH is continuously trading under ETH since Luna Classic chain got diluted. People had their stETH staked on Anchor Protocol. It traded for 5%+ discount instead of 3%+ premium. Even as of today, 4 June 2022, this peg is broken.

Some people might see this as an opportunity. But is it really? 

Without the support of wider defi protocols liquid staking cannot work. It is a trust system. And as we have seen with Luna blowup, many things can go wrong and create a cascade.

Although Lido is a respectable business leader and captured a giant market share. We at SonicBank have decided to walk away from offering Liquid Staking. As it exposes our customers to unknown risks. Instead we want to focus on providing highest yields (higher than Lido), security and transparency of customer funds.


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