Key Insights to Maximizing Staking With Lido

By 

Josiah Makori

 on April 30, 2022. 
Reviewed by 

Marcel Deer

Several Lido coins seemingly falling from the sky

Lido is a user-friendly DeFi staking platform built on the Ethereum blockchain. It minimizes the barriers to entry for staking by allowing crypto investors to stake even a fraction of ETH on Ethereum 2.0 and generate passive returns.

Likewise, it eliminates the pain of comprehending Ethereum 2.0 technicalities and maintaining the system active. Better still, Lido offers Liquid Staking to address the liquidity problem plaguing traditional finance.

At its core, Lido strives to:

  • Enable users to earn staking rewards without completely locking their assets
  • Offer users the necessary flexibility to earn passive income on deposits smaller than 32 ETH
  • Minimize the risks of losing staked funds as a result of software hitches or selfish intermediaries
  • Offer stETH as the native token for fueling Lido activities, such as collateral in lending
  • Offer an alternative to crypto exchange staking, self-staking, and other semi-custodial and DeFi protocols

The Pros and Cons of Lido Staking

Pros

These are the pros of Lido staking:

  • Lido offers its users liquidity via their derivative token – stETH
  • It offers an easy way to stake ETH with a user-friendly interface
  • Individuals with less than 32 ETH can stake their funds since there is no fixed minimum staking amount
  • Stakers can receive up to 18.1% annual percentage rate (APR) as staking rewards
  • Lido allows users to use decentralized wallets like Trust Wallet, enjoying total control of their funds

Cons

The cons of Lido staking are:

  • Like other protocols, the Lido smart contract is vulnerable to hacking
  • Lido stakers can directly suffer losses if any supported blockchain is hacked

How Does Lido Work?

Lido allows stakers to earn esETH tokens without full locking their funds or maintaining its staking infrastructure. Instead, stakers earn stETH tokens on a 1:1 ratio to their staked funds. stETH balances are updated every 24 hours, reflecting the staking rewards. Better still, you can use them as normal Ether to generate yield and lending rewards.

Furthermore, Lido staking does not have minimum deposits and lock-up periods. Stakers earn secure staking rewards every 24 hours, further securing the Ethereum network without the downside perspective and related risks.

Lido is governed as a DAO, and the staked funds are distributed between proven and industry-leading node operators. When you stake ETH through Lido’s staking pool, you earn stETH tokens, reflecting your staked funds and the applicable rewards or fines.

Lido Components

Lido DAO

It governs the Lido staking smart contract for Ethereum. Its competitors are popular liquidity providers like centralized exchanges and DeFi protocols like RocketPool.

The DAO comprises reputable members from different backgrounds like Semantic VC, Terra, Libertus Capital, P2P Capital, KR1, StakeFish, etc.

Lido Tokens

Lido rewards its stakers with two tokens:

Liquid stETH They reflect user deposits, slashing fines, and staking rewards. Basically, stETH is a liquid alternative for the staked ETH and can be transferred, exchanged, or used in DeFi apps and products.

LDO Token The Lido DAO aims to decentralize Lido’s decision-making process to build a trustless staking service that is community-driven and self-sustainable. Lido members can purchase LDO tokens from DeFi exchanges like Uniswap and SushiSwap.

Staking With Lido

Lido provides ETH staking as a service product to investors under flexible terms than self-staking by avoiding asset freezing and maintaining a validator node. Besides, it allows stakers to generate passive income with even a fraction of Ether.

Lido charges a staking fee of 10%. Moreover, users can stake tokens from any supported blockchain like Ethereum, Terra, and Solana.

Here is a step-by-step process on how to stake ETH on Lido:

  • Go to the Lido website and click the “Connect Wallet” button on your upper right corner
  • The platform will redirect you to the available DeFi wallets to select your preferred option. After selecting and connecting your wallet, you will see your Ether balance in the Lido widget
  • Key in the amount of Ether you wish to stake and click the “Stake” button. Even before confirming the transaction, you will be able to see your stETH balance, gas fees, and the APR.
  • After agreeing with the Lido services, complete the process by clicking “Confirm” in your DeFi wallet

How Are Lido Staking Rewards Calculated?

When writing this review (April 2022), the Lido Staking Reward is 3.9% APR. However, as mentioned earlier, the APR sometimes increases to 18.1%. Generally, Lido’s staking rewards are more competitive than its competitors.

As more investors stake ETH, the APR may reduce, and Ethereum, not Lido, regulates the rates.

Lido rewards its stakers with esETH, consisting of the value of staked amount and rewards or fines. The good thing is that Lido stakers can further deposit their stETH rewards into decentralized protocols such as Curve Finance to earn other rewards. For instance, Curve Finance rewards up to 12% APY in various tokens, including stETH, ETH, and LDO, for staking esETH.

Should You Stake with Lido?

While DeFi staking is profitable in almost all rounds, it has risks. However, here are two primary reasons why you should stake with Lido:

  • The Lido protocol is tested and safe as it has undergone several audits
  • Lido leverages a unique decentralized custody model, which splits the withdraw key of its node validators into 11 sections and participants

If you are fully convinced to try Lido staking, visit the Lido website to get started.

The Defipedia team wishes you happy staking!

Disclaimer: The views on Lido Staking expressed in this review are for general information purposes only and are not designed to act as financial advice. Defipedia will not be held accountable for any losses resulting from its use.

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