The total amount of Ethereum (ETH) staked on Lido Finance has been steadily increasing over the past few years. However, the revenue generated by the platform has not grown as fast as expected compared to the staking rewards distributed.
According to Token Terminal data, the staking rewards paid by Lido Finance, which are counted as “fees,” have grown from less than $10 million in early 2021 to over $60 million in June 2023. In contrast, the revenue has grown at a much slower pace, averaging less than $5 million during this period.
Lido Finance is a liquidity staking protocol that allows users to stake multiple proof-of-stake (PoS) coins, including Ethereum, without locking them up. It enables users to earn staking rewards while still accessing their ETH or any other supported coin.
To achieve this, the protocol issues a derivative called stETH for every ETH staked. This token can be freely traded on exchanges and used as collateral for trustless loans on supported platforms.
The recent shift of Ethereum to a proof-of-stake blockchain has benefited protocols like Lido Finance. The activation of Shanghai in April 2023 allowed Ethereum validators to withdraw their staked ETH for the first time, leading to the preference for alternatives like Lido Finance. As of October 19, Lido Finance had a total value locked (TVL) of $13.913 billion, most of which consisted of assets on Ethereum.
Despite its success in enhancing accessibility and liquidity, Lido Finance’s revenue remains low compared to the staking rewards distributed. This raises concerns about potential centralization on the Ethereum network. Critics argue that Ethereum’s reliance on its co-founder, Vitalik Buterin, for endorsement and guidance could hinder future development.
It is yet to be seen if Lido Finance plans to increase the 10% fee charged to increase its revenue. The network also distributes part of its revenue to LDO holders and node operators.
In conclusion, while Lido Finance has experienced significant growth in terms of staking on its platform, its revenue has not kept up with expectations. This raises questions about the sustainability and potential centralization of the protocol on the Ethereum network.
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