The Growth of the LSDFi Sector in the Ethereum Ecosystem and Competition Between Diva and Lido
Date: 2023-10-18 Author: Dima Zakharov Categories: CRYPTO PAYMENTS
The LSDFi Boom in the Ethereum Ecosystem: Surging Popularity and Locked Value
This year, the sector of Ethereum's Liquid Staking Derivative Finance (LSDFi) is experiencing a true boom, attracting ETH holders with its attractive yields and the option for restaking. According to a CoinGecko report, the total locked value in the LSDFi sector has increased by a staggering 5870% since the beginning of this year, which is nearly a 60-fold increase since January.
The LSDFi sector has garnered significant attention from cryptocurrency market participants due to the compelling alternative it offers to the conventional withdrawal of ETH. Despite the option for withdrawal following the Ethereum Shapella upgrade in April 2023, ETH holders are increasingly choosing to keep their assets within LSDFi to earn additional profits.
In addition to the growth in the total locked value, LSDFi protocols have begun to occupy a substantial portion of the staked ETH. By August 2023, LSDFi protocols represented 43.7% of the total staked 26.4 million ETH. In this context, the Lido protocol stands out as one of the largest players, accounting for almost a third of the market.
The statistics show that ETH holders are more inclined to restake their assets rather than liquidate them after withdrawal. Even with the ability to withdraw funds, the withdrawal queue in LSDFi remained almost empty for over half the time (55%), and in the majority of cases, it consisted of fewer than 10 validators for 77% of the time.
The emergence and growth of the LSDFi sector in the Ethereum ecosystem can be attributed to the introduction of protocols designed to allow small ETH holders to participate in staking and unlock liquidity following the launch of the Ethereum Beacon Chain in December 2020.
Competition Between Diva and Lido: A Vampire Attack and TVL Growth
In the past two weeks, the Ethereum community has been abuzz with discussions regarding events in the LSDFi sector, particularly the competition between two major players: Diva and Lido. Diva, according to its supporters, is executing a "vampire attack" on Lido by attracting users and liquidity away from the latter protocol through more generous incentives.
Diva offers token rewards for users who lock their ETH, whereas Lido offers ETH (stETH) for divETH. According to Divascan data, starting from October, Diva's Total Value Locked (TVL) has grown by 650%, reaching 15,386 stETH, equivalent to around $24 million.
This competition is driving innovation in the LSDFi sector and is capturing the attention of ETH holders who now have more choices in how they can maximize their yield. This example illustrates how rapid changes and competition can shape the decentralized finance ecosystem within Ethereum, making it more dynamic and appealing to investors.
