Thread by @0xsurferboy

1/13 The bussin LSD Narrative: Will Lido's share of ETH stake skyrocket after the Shanghai upgrade?

What will happen to the withdrawn ETH? 🧵

2/13
A quick mention to @ViktorDefi for pointing out this narrative! 💪

Give it a read if you haven't yet 👇

3/13
ETH's staking ratio isn't too great compared to other chains and a few reasons include:

- High risk associated with the inability to withdraw stake
- Capital inefficiency of having >32ETH.

4/13
Ethereum's Shanghai upgrade launch timeline:

5/13
Before diving into the narrative of LSD protocols skyrocketing, let's take a look at the process leading up to it.

To understand that, we need to analyze the staking and withdrawing mechanism ⚙

6/13
ETH validators have what's called an Effective Balance ("EB") used to calculate rewards/penalties:

- EB will never be >32ETH
- EB is a multiple of 1 (ie 29.5ETH = EB of 29)
- The "Hysteresis zone" indicates areas where EB never changes:

7/13
The EB means even if a validator has accumulated 50 ETH over the course of staking, he only gets 32 ETH worth of rewards - capital inefficient.

Data from Beaconchain (as at 10 Jan) indicates an average validator balance of 34ETH.

8/13
With 497K Validators, that's 994K ETH ($1.32B) worth of inefficient capital.

And that's what could potentially be pumped into LSD protocols 😋

9/13
Each epoch supports 256 withdrawals -tinyurl.com/withdrawalsper…

An ETH epoch lasts 6.4mins which equates to ~225 epochs a day, or 57.6K withdrawals.

Logically, validators would withdraw the 2 excess ETH for better use, ie 57.6K x 2 = 115.2K ETH withdrawn a day.

10/13
Hence, it takes around 10 days for the full 994K of "inefficient ETH" to be withdrawn.

11/13
This 994K ETH could be re-staked into LSDs like Lido or Rocket Pool or sold in open markets, potentially leading to sell pressure across the 10 or more days.

12/13
While the narrative of Lido's 51% monopoly is possible, LidoDAO is contemplating limiting their max stake to a fixed % of total staked ETH to ensure decentralization.

13/13
I hope you've found this thread helpful.

Follow me @0xsurferboy for more threads on untapped crypto topics 😊

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