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Lido experiences a three-year decline in Ethereum staking market due to stETH depeg issues.
Lido’s previously strong position in the Ethereum staking sector has declined to a three-year low, with its market share now at 25%.
This decrease aligns with a sustained depegging of stETH, the liquid staking token provided by the platform.
Lido’s diminishing market share
On July 24, Tom Wan, the head of data at Entropy Advisors, referenced information from Dune Analytics indicating that Lido’s staked ETH volume has decreased by 5% over the last six months. This represents the lowest market share since March 2022.
Concurrently, the platform’s withdrawal queue has reached its highest point since the withdrawal feature was activated, with over 235,000 stETH pending exit.
The increasing exit pressure follows substantial withdrawals from several prominent entities, including Justin Sun, investment firms such as Abraxas Capital, and staking platforms like Ether.fi.
Despite the notable withdrawal requests, Lido continues to be the largest Ethereum staking provider by a considerable margin. It currently possesses over nine million ETH, with its closest rivals, Binance and Coinbase, significantly behind.
As stated on its website, the platform still provides a 2.8% annual percentage rate (APR) and reports more than $33 billion in total value locked.
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stETH depeg
The decline in Lido’s market standing coincides with a prolonged depegging of stETH from ETH.
Blockchain analytics firm Glassnode attributed this to increasing WETH borrow rates on Aave, which made popular leveraged staking strategies unprofitable. Consequently, users began to unwind their positions, heightening sell pressure on ETH and weakening the stETH/ETH peg.
Variable Borrow Rate on Aave (Source: Glassnode)
The company also observed that a rising validator exit queue further exacerbated the situation, reducing the efficiency of arbitrage and hindering peg recovery.
Mark Zeller, co-founder of Aavechan, highlighted repeated significant ETH movements, particularly from large holders like Justin Sun, as a factor contributing to increased Aave utilization rates.
He noted that these withdrawals caused Aave’s utilization rate to spike, rendering borrowing excessively costly and accelerating the unwinding of leveraged positions.
Although the peg experienced a sharp break temporarily, Zeller mentioned that borrowing rates have since stabilized and anticipates a return to normalcy.
The post Lido faces three-year low in Ethereum staking market amid stETH depeg turmoil appeared first on CryptoSlate.
