Sunsetting on the Horizon: Lido Finance’s Liquid Staking Shake-Up on Polkadot and Kusama

DeFi protocol Lido Finance has caught the attention of the crypto community once again, this time with its intention to sunset liquid staking on the Polkadot and Kusama ecosystems. On Tuesday, Lido’s partner and decentralized finance applications developer firm, MixBytes, proposed the cessation to take effect from August 1, 2023.

The proposal, written by MixBytes’ Chief Product Officer Kosta Zherebtsov, cited a number of challenges facing the protocol, including market conditions, protocol growth, and limited capacity with regard to priority alignment. Nevertheless, despite the imminent change, Lido has successfully become the world’s largest DeFi protocol, with roughly $9 billion worth of digital assets locked within the platform.

This growth can be attributed to the popularity of yield-earning strategies through crypto-based staking. Essentially, crypto holders can lock up their tokens and delegate them to secure proof-of-stake blockchains in exchange for a reward. With liquid staking, this process can be conducted without sacrificing all of one’s capital, as investors can maintain liquidity in the form of derivatives.

Lido’s proposed timeline would have investors stop investing in DOT and KSM for liquid staking by March 15, with unstaking tokens to take place automatically in June. If this proposal takes effect, it would affect over $25 million worth of assets, according to DefiLlama. Before then, however, the protocol has recently introduced its V2 update, focusing on staking Router Smart Contracts to modularize node operator registries and test withdrawals of ETH.

The recent news of the protocol’s upgrade was met with overwhelming excitement, with the price of the LDO token increasing by 15% at press time. Additionally, following the transition of Ethereum’s proof-of-work consensus mechanism to proof-of-stake back in September, 2021, liquid staking has boomed on platforms such as Polygon and Solana.

On Polygon, MATIC stakers can earn annual yields of between 6.4%-9.55% via Lido, ClayStack, Ankr, and Stader. The protocol enjoys the highest volume of staked MATIC, with over 73 million MATIC locked. On Solana, over 2.4 million SOL has been staked on Lido for up to 6.43% in returns.

In regard to DOT and KSM, 2.2 million DOT has been staked on Lido, while the platform also accounts for 84,000 KSM. Likewise, Karura, the main DeFi hub for Polkadot’s Kusama network, has 192,000 KSM staked in its protocol.

Going forward, Lido Finance’s liquid staking shake-up on Polkadot and Kusama may result in a shift in the DeFi sector in terms of yield-earning strategies. For the time being, close monitoring of the protocol’s proposals and updates will be required in order to ensure that investors make informed decisions regarding staking their digital assets.

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Rina Giannino
Journalist venturing into blockchain, Rina has been a follower of the technology since 2019 and finally taken the plunge with a career as a journalist in the industry.