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What will happen to the withdrawn ETH?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Logically, validators would withdraw the 2 excess ETH for better use, ie 57.6K x 2 = 115.2K ETH withdrawn a day.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Hence, it takes around 10 days for the full 994K of "inefficient ETH" to be withdrawn.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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