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Lido Finance implements drastic measures to curb unprecedented Ether staking surge

Grayscale Investments ramps up DeFi interest  with Lido addition

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TL;DR

  • Lido Finance activated its safety feature— staking rate limit— after over 150,000 ETH was staked within 24 hours.
  • The mechanism works by decreasing how much total stETH can be minted based on recent deposits and replenishing capacity at 6,200 ETH per hour.

Lido Finance, a liquid staking protocol, recently activated a protocol safety feature called “staking rate limit” after over 150,000 Ether (ETH) was staked with the protocol in just one day. Lido offers users an innovative way of staking Ether without requiring their tokens to be locked away. When users deposit ETH, Lido issues them with a liquid variant of ETH, known as staked Ether (stETH), which provides users with staking rewards for each day the tokens are held in their wallets.

Lido Finance safety feature

The liquid staking protocol’s February 25 tweet confirmed that the “dynamic mechanism” had been activated after 150,000 Ether reached its daily staking limit. According to Lido’s guide on the safety valve, this is meant to limit minting during high inflows and avoid adverse effects such as rewards dilution.

This means that within 24 hours, the Lido staking contracts can only receive a maximum of 150,000 Ether. The mechanism works by decreasing how much total stETH can be minted based on recent deposits and replenishing capacity at 6,200 ETH per hour. Also, it affects all parties attempting to mint stETH regardless of approach. On-chain analyst Lookonchain shared a screenshot supposedly showing that the 150,100 ETH originated from one user, with three deposits of 50,000 each and one deposit of 100.

According to Lido Finance’s website, Ether staking volumes have continued to rise as the Shanghai upgrade approaches. As of February 27, more than $8.9 billion in ETH has been staked with the protocol; this is a significant increase from the $5.8 billion reported on January 2.

With EIP-4895, part of the five planned upgrades for Ethereum‘s Shanghai upgrade, due to launch in mid-March, users can unlock staked ETH and withdraw. This could lead to increased crypto market liquidity as over $25 billion of ETH has already been staked since the Beacon Chain was launched and introduced staking to ETH in December 2020.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Damilola Lawrence

Damilola is a crypto enthusiast, content writer, and journalist. When he is not writing, he spends most of his time reading and keeping tabs on exciting projects in the blockchain space. He also studies the ramifications of Web3 and blockchain development to have a stake in the future economy.

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