Ethereum underwent a transition from a PoW to PoS mechanism in September 2022, allowing individuals to stake their ETH and receive rewards in return. However, despite the Ethereum Merge users were unable to unstake their staked ETH. Shapella upgrade enabled unstaking for the first time since the introduction of ETH staking.
The staking market has experienced remarkable expansion within a year, witnessing a substantial increase in the TVL within staking protocols, surging from approximately $10 billion in 2019 to over $70 billion by 2022. As of the current time, the market cap of the top 35 staked assets stands at $254 billion, with the value of staked assets totaling $74 billion. PoS chains now hold a 22% share of the entire crypto market.
However Staking involves locking up assets, rendering them illiquid. Stakers also become susceptible to various challenges, including Limited Liquidity, Slashing Risks, Complexity, Operational Overhead, Lack of Control, and Transparency. According to a report by CoinShares, institutions lost an estimated $5 billion in liquidity in 2022 due to traditional staking lock-ins.
Liquid staking, on the other hand, allows users to earn staking rewards while retaining access to their staked assets. This is achieved by issuing a tokenized representation of the staked asset, commonly referred to as a LSTs.
The Total Value Locked in LSTFi protocols experienced a remarkable growth of 5,870% since January 2023, reaching $919.0M by the end of August 2023. By August 2023, Liquid staking protocols constituted 43.7% of the total 26.4 million ETH staked. Currently Liquid staking is the largest DeFi category in terms of TVL, amounting to $22.4B, with over 72% related to Ethereum.
Considering the rapid growth of the market and the increasing global adoption of cryptocurrencies, coupled with clearer regulatory frameworks, this appears to be an opportune moment for institutions to enter the industry. However, the absence of an industrial-grade liquid staking infrastructure pr esents a significant gap, necessitating the development of a liquid staking infrastructure specifically tailored for institutions.