Lido wants to attract more institutional customers. Ensuring deep liquidity is a major focus. The protocol also suggests new features to attract institutional clients.
One of the buzziest ideas in DeFi this year, Retaking has hit a $15 billion market cap.
It's big with risk-tolerant crypto investors, known as DeFi degens, who want the highest possible returns on their assets. In recent months, many DeFi protocols have pivoted to restaking cash on trend.
But Lido, the largest DeFi protocol with $25 billion in deposits, is strangely staying away from the party.
“It's not a priority,” says Keen Gilbert, Lido's corporate relations leader News.
Instead, Lido will focus on serving institutional investors through DeFi degens by further expanding its flagship product called stETH — a tradable version of staked Ether.
“Institutions are not bullish on restaking because it's not mature yet,” Gilbert said.
Institutional investors refer to small hedge funds, family offices, venture capitalist firms, investment funds and trading companies.
Restaking is a way to re-create staked tokens – such as Ether – to secure other networks and earn their owners additional rewards.
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But the development is slow. Although protocols such as EigenLayer promise increased throughput to users, the protocol still does not implement this feature.
stETH is expanding
Lido is the largest so-called liquid staking protocol. This allows investors to earn a 3% annual return for a 3% annual yield, a tradable version of their stake Ether that they can use in DeFi.
The stETH token is already massive 70% Ether is a liquid stock market.
Lido (blue) dominates the ether liquid staking token market.
But Lido wants more, and institutional investors are a relatively untapped consumer group.
“The priority is to double down on stETH and liquid staking and add as much depth as possible,” Gilbert said.
Liquidity is a top priority. Funds and family offices need to know that there is enough stETH sloshing around to allow them to exit their positions when necessary.
“They want to know how much they can sell and how long it will take to sell,” Gilbert said.
Analysts have previously pointed to stETH's declining liquidity as a potential problem. Currently, there is only one $198 million stETH liquidity on decentralized exchanges, down 30% since the start of the year.
Many stETH holders fear that if they suddenly need to sell their tokens, they won't have enough liquidity to do so. This could cause the asset to break its peg from Ether and set off a cascade of liquidations.
The potential for such a situation to affect organizations is limited, Gilbert said. why This is because many funds using stETH transact over-the-counter, selling directly to each other, bypassing the open market.
“If people think there's not enough depth, they certainly won't use it,” Gilbert said.
Separated pools
Liquidity is one thing. There are other factors that organizations should consider.
Some are wary of Lido's stETH or other liquid staking tokens due to strict regulatory requirements. A 2023 report from NorthStake found that 1% of deposits to top liquid staking protocols came from illicit sources.
Although this is a small amount, it can cause problems for regulated entities that must adhere to strict anti-money laundering regulations.
Lido is looking to create additional features, such as segregated staking pools with my-customer checks, especially for institutional clients affected by such regulations, Gilbert said.
To be sure, for many of Lido's existing institutional clients, the lack of AML checks has not deterred them from using the protocol.
“We believe the lido is already institutional-grade,” Gilbert said. “About 25% of our total value locked up today is actually institutional capital.”
TVL is a metric that tracks how much crypto is locked in a DeFi protocol's smart contracts or across all DeFi protocols running on a given blockchain.
Looking for leverage
Another consideration is to ensure that investors can use stETH in whatever way they want.
Leverage is at the top of many institutional investors' wish lists. Top DeFi lending protocol Aave already has an established marketplace for lending and lending stETH.
Lido is the most recent Sharing Digital asset software company Fireblocks offers organizations more options.
Institutions holding stETH can now use it as collateral in crypto exchange ByBit and Crypto Derivatives to exchange DeriBit through FireBlocks.
“We want to create as much opportunity for stETH holders, from an institutional perspective, to do as many good things as they can,” Gilbert said.
Giving companies the option to take leverage is great to attract, but there are downsides.
Leverage has also greased the wheels of every major crypto crash.
Tim Craig is News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
Related TopicsLIDOSTAKINGETHEREUM
