Ethereum Backed Staking Service Lido Finance Plans Its Expansion Across Layer 2

Lido Finance, a cryptocurrency staking service firm, declares its intention to spread across the Ethereum Layer two networks. Furthermore, the company announced that it would extend its support to the Ethereum ecosystem through its services on staked Ether (stETH).

The Lido team revealed its plans through a blog post. It stated that its fundamental step is to maintain Ether staking through L2 bridges while using wrapped stETH (wstETH). Progressively, it would eliminate the need for bridging users’ assets back to the mainnet of Ethereum. Hence, users can directly stake their tokens on Layer two networks.

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The service provider primarily focuses on ETH staking services. Its users are rumored to receive about 3.9% annual yields using the platform. Also, the firm offers staking rewards on different assets such as Polkadot (DOT), Solana (SOL), and Kusama (KSM).

Its record shows over 4.2 million Ether staked on the site, worth about $6.5 billion. This value places Lido as one of the largest platforms in total stETH value. Also, it stands as the second largest in total value locked (TVL) within the DeFi ecosystem.

In its operation, when a user deposits ETH on Lido, the platform mints a tokenized version of the deposit as stETH. The minted token can serve yield services or borrow from other decentralized protocols.

Additionally, Lido has been stretching its partnership with other Layer two networks. Before their announcement, the service team mentioned that the company had already completed its bridged staking service with Aztec and Argent. Further, it is moving toward more integration and collections, which it intends to reveal in the coming weeks.

The Lido team also acknowledged that on completing its L2 staking support, activities would start with Optimism and Arbitrum, the L2 champions. Then, the company would gradually extend its activities to other L2 networks with positive records of economic activities.

Benefits Of Using L2s For Ethereum Staking Firm Lido Finance

The staking service firm aims to ensure its users enjoy lower fees while staking ETH and other tokens. This comes from the concept that L2s are developed to cut costs for Ethereum transactions. Also, the company is working toward offering its customers access to diverse, decentralized applications that maximize their yield while staking.

Also, the team stated that the L2 networks require a staking solution to create more support for their users’ economic operations. So, its plans spread to ensure that Ethereum users are committed to maintaining the security of the entire ecosystem.

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Usually, stETH has an equal pegging to Ether with a ratio of 1:1. But due to the collapse of the Terra ecosystem in May, the peg falls to 0.95 of 1 Ether.

Long-term holders and stakers have limited risks with the depegging of the staked ETH. The severity is more on those that pull out leveraged positions on the asset, which could amount to liquidation. Distorted companies such as Three Arrow Capital (3AC) and Celsius Network have reports of using stETH.

Currently, Lido operates with the correct ratio of 1:1 for exchange between ETH +and stETH. But one of its partners, 1inch, DeFi exchange aggregator is offering up to 2.36% discount while minting stETH. Hence, while using 1inch, depositors get more stETH for their deposited ETH.

Featured image from Shutterstock, chart from TradingView.com