There are many crypto projects in the DeFi market, but few manage to break into the top tier. Lido is a welcome exception to the rule. With the platform, you can significantly boost your staking yields.
Here’s how Lido works and what additional sources of yield its developers offer.
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What Is Lido
Lido is a popular liquid staking protocol that has been operating since 2020. Let’s unpack those two not-so-obvious words.
Let’s start with “staking.” The term refers to deliberately locking up cryptocurrency to support a network. You can compare the process to moving money into a term deposit. In exchange for locking your coins, the user receives rewards.
UI screenshot
Now to the word “liquid.” The term here is meant to clarify the essence of the project for a prospective Lido user. Staking is “liquid” only if, in return for the locked coins, the user receives a Liquid Staking Token (LST). These tokens are like a “receipt” confirming that your crypto is staked. At the same time, LSTs can also be used to earn, which means they unlock liquidity.
A simple analogy. Imagine you put money in a bank to earn interest. The bank gives you an agreement that states the value of your assets. Only it’s not just a piece of paper; it’s a document that can also generate income.
At the time of writing, Lido ranks second among DeFi projects by TVL—the total value locked for its needs. Only a few percentage points separate it from the absolute leader, Aave.
Lido in the top 10 DeFi projects by TVL. Source: DeFi Llama.
Based on TVL, Lido’s peak activity occurred in March and December 2024. At the time of writing, the metric is again approaching its all-time highs.
How Lido’s TVL has changed. Source: DeFi Llama.
What Are stETH and wstETH
Technically, Lido is a decentralized autonomous organization (DAO) whose ecosystem runs a DeFi project on smart contracts—self-executing agreements. It operates on the network of Ethereum, the second-largest cryptocurrency by market cap.
The project focuses on staking ETH. At the time of writing, the platform offers an annual yield of 2.7%.
For staked Ether, Lido users receive the LST token stETH. Here’s what you can do with it:
- simply hold it in your account and earn additional yield;
- use it for trading on DeFi platforms;
- use it as collateral to borrow crypto.
Besides stETH, there is also wstETH. Technically, wstETH is “wrapped” stETH. The new format was introduced to make stETH compatible with certain DeFi protocols, bridges, and Layer 2 networks. Anyone can “wrap” stETH.
With stETH you can earn by lending for interest on DeFi platforms. The LST token also works as collateral for taking out loans. You can also use it for restaking and for leveraged staking.
How Exactly Lido Works
Let’s go through how it all works by walking through the first steps on Lido:
- You deposit ETH on the platform and receive stETH at a 1:1 rate. Your stETH balance automatically increases every day: the protocol rebalances shares and credits you with a portion of the validators’ aggregate rewards. The amount of wstETH in your balance, unlike stETH, does not change, but its exchange rate to ETH grows over time (rewards accumulate inside).
- Lido’s core smart contract (Core contract) accepts your deposits. It temporarily holds ETH in a special account (the buffer), mints stETH, and routes ETH further through the system.
- The Staking Router—the “dispatcher”—distributes your ETH across staking modules and validator operators according to their limits and rules.
- Ethereum’s consensus blockchain (the Beacon Chain) processes the operations.
- Lido oracles reconcile the actual state of validators once per day and feed it into the smart contracts. Based on this data, the protocol automatically increases users’ stETH balances and accounts for the fee.
Diagram of how Lido works: stake ETH, get stETH, use stETH in DeFi.
Lido’s Cryptocurrency
The project has a native token, Lido DAO (LDO). It’s used to pay fees on the platform. LDO also helps ensure fair voting, submit improvement proposals, and incentivize the project’s users.
At the time of writing, LDO ranks 85th by market cap on CoinMarketCap. The cryptocurrency trades at $1.02, which is 94% below its all-time high of $18.62, recorded in November 2021 when Bitcoin refreshed its post-2018-halving cyclical peak.
Lido DAO (LDO) information. Source: CoinMarketCap.
Wrapping Up
Lido is the most popular platform in its category and the second-largest project by TVL in the entire DeFi market. Such a strong position and the growth of assets locked in the protocol point to solid demand.
With Lido, you can earn not only from staking, but also from deploying LSTs afterward. The project’s solutions help members of the crypto community materially increase their returns.
Earlier, the Quickex editorial team explained restaking on EigenLayer and how much you can earn.