New Highs for Liquid Staking Derivatives

Key Insights

• Ethereum’s forthcoming upgrade in Q1 is expected to enable withdrawals from the staking contract. Withdrawals will lower the risk of staking and likely increase the total amount of ETH staked.
• The expected growth in ETH staked has created market excitement for liquid staking protocols. LDO and RPL have recently outperformed, up 24% and 12%, respectively, from the beginning of the year.
• Under base case expectations, Lido captures 32% staking market share with a fair value of $1.36, and RPL captures 5% market share with a fair value of $38.

Ethereum's Shanghai hard fork is planned to go live at the end of Q1 2023. In it, a critical update to the staking contract will allow for staking "withdrawals." Withdrawals will improve the staking experience on Ethereum and the economics of liquid staking protocols.

A Better Staking Experience

Unlike other Proof-of-Stake (PoS) chains, currently, when you stake ETH, it is a one-way transaction with no way to unstake or "withdraw." Long-term holders and believers who staked when the beacon chain went live in December 2020 took a leap of faith that they would eventually be able to withdraw. After The Merge, the risk of staking has substantially reduced, but withdrawals remain unavailable. The All Core Devs meeting in December 2022 made withdrawals a top priority for Shanghai at the expense of delaying other improvements.