After years of development and anticipation, Ethereum’s merger (from Proof-of-Work PoW to Proof-of-Stake PoS) is finally about to be completed by the end of the second or third quarter of 2022. This transformation is not only a technological leap, but will have a profound impact on the entire crypto ecosystem.
The impact of the Ethereum merger
The merger will significantly reduce Ethereum’s energy consumption and bid farewell to traditional mining methods. The Ethereum network will no longer require energy-intensive mining to maintain security, a change that will reduce the issuance of ETH by more than 90%. Additionally, this paves the way for future scalability upgrades such as sharding.
The impact of the merger is also felt at the application level, especially the growth of liquidity staking services. Liquidity staking protocols allow users to stake while still using their assets, thereby eliminating the opportunity cost of participating in staking. By issuing derivatives tokens, these protocols enable users to flexibly deploy their assets across the entire DeFi ecosystem.
Prior to the merger, $10.89 billion worth of ETH was pledged, with depositors temporarily unable to withdraw the assets, according to Dune Analytics. This phenomenon indicates that the liquidity staking industry will grow rapidly in the next few years, possibly reaching tens of billions or even hundreds of billions. At the same time, other rapidly growing PoS networks such as Terra, Solana, and Avalanche are also emerging to breathe new life into the staking economy.
Lido vs. Rocket Pool Comparison
Lido and Rocket Pool are two of the largest players in the currently rapidly growing liquidity staking industry. Although the two protocols offer similar products to users, they differ significantly in their architecture, adoption, growth strategies, and design of their native tokens.
Lido Protocol: Lido provides users with a simple and easy-to-use staking solution. ETH holders can deposit their tokens into Lido’s smart contract and receive stETH at a 1:1 ratio. stETH is an ERC-20 token that represents a user’s claim on staked ETH. The deposited ETH will be allocated to the validator node. Users can not only earn staking income, but also use stETH in DeFi, which improves capital efficiency.
While Lido is non-custodial, its validators are chosen through governance by the Lido DAO. This model improves scalability but also introduces potential centralization risks as power is concentrated in the hands of LDO token holders.
Rocket Pool Protocol
Compared to Lido, Rocket Pool is designed to be more decentralized. Users can deposit ETH to receive rETH, which is also a derivatives token based on the ERC-20 standard. Rocket Pool allows anyone to become a node operator on the network by creating a “mini pool”, but requires node operators to deposit 16 ETH and stake 1.6 ETH worth of RPL tokens as security.
Rocket Pool’s model ensures alignment of interests between the protocol and node operators by requiring node operators to stake RPL tokens. However, this also reduces the scalability of the protocol, as the joining of each node is limited by deposit requirements.
Growth strategies and market adoption
Lido has been a huge success since its launch in December 2020. According to the latest data, the protocol has accumulated more than 3.05 million ETH from more than 33,600 unique depositors, which is worth approximately $10.3 billion at current prices and represents approximately 28% of all ETH staked on the Beacon Chain. What’s more, Lido solidifies its dominance with an 88.1% share of the liquidity staking services market.
Lido’s success stems in part from its multi-chain expansion strategy, supporting liquidity staking in LUNA, SOL, KSM and MATIC in addition to ETH. This diversification has allowed the Lido protocol to accumulate $9.66 billion worth of deposits, with stLUNA/bLUNA being the largest liquidity staking scheme on Terra and stSOL being the second largest liquidity staking scheme on Solana.
Rocket Pool’s market prospects: Although Rocket Pool’s market share is currently lower than Lido’s, its decentralized features and unique operating model give it a place in the competition. As more and more users focus on decentralized staking solutions, Rocket Pool is expected to gain more market share in the future.
in conclusion
Lido and Rocket Pool have their own characteristics in the field of liquidity staking. The former relies on its efficient capital utilization and market dominance, while the latter attracts users with its decentralized design. As the governance token of Rocket Pool, RPL token plays an important role, providing incentive mechanism and security guarantee for node operators.
In future market competition, the performance of Lido and Rocket Pool will depend on how they adapt to user needs and market changes. When investors choose LDO and RPL as investment targets, they need to carefully consider their respective advantages and risks.
The future of liquidity staking is full of opportunities, and the RPL token will undoubtedly play an important role in this journey. As the Ethereum merger is completed and the PoS ecosystem continues to develop, the potential of the RPL token deserves attention. We hope that in the days to come, liquidity staking can bring convenience and benefits to more users.