Lido Finance, a crypto staking service provider, has announced plans for expanding staked Ether support in the Ethereum layer-2 (L2) ecosystem.
In a Monday blog post, the Lido team noted that it would initially begin by supporting Ether (ETH) staking via bridges to L2s using wrapped stETH (wstETH). Moving forward, it will eventually enable users to stake directly on the L2s “without the need to bridge their assets back” to the Ethereum mainnet.
The team said that it had integrated its bridged stake services with Aztec and Argent before the announcement. The team stated that it would reveal the next set of partnerships and integrations in the coming weeks.
Once the fully-fledged L2 staking support is ready, the Lido team noted that it will first start with L2 heavyweights Arbitrum and Optimism before expanding out to other L2s that have sufficiently “demonstrated economic activity.”
Given that L2s are designed to reduce the cost of Ethereum transactions, the team touted this move will enable users to stake ETH with lower fees while also gaining “access to a new suite of DeFi applications to amplify yields:”
“There are several types of L2s. We believe that in the future, a large portion (if not a majority) of economic activity and transaction volume will migrate to both general use and purpose-specific Layer 2 networks.”
“Each of these networks will benefit from or need staking solutions to support their users’ economic activities and ensure that all users of Ethereum ecosystem networks have the ability to participate in securing Ethereum,” it stated.
According to Lido’s website, it currently has more than 4.2 million ETH staked on the platform, which is worth around $6.5 billion, making it one of the largest providers in terms of total stETH value and second overall in terms of total value locked (TVL) for decentralized finance (DeFi) platforms.
Related: As the Ethereum Merge gets closer to completion, Lido DAO prices rise
Lido can offer staking incentives on a number of assets such as Solana (SOL), Kusama(KSM) and Polkadot [DOT]), but its ETH staking service, which offers an annual yield of around 3.9%, is the main use of Lido.
After a user deposits their ETH to the platform, a tokenized copy of that deposit is minted as stETH. This token can then be used for borrowing or yield services using other DeFi protocols.
stETH has a pegged ratio of 1 to ETH. The peg was famously broken to represent In May after the $40 billion Terra ecosystem disaster, 0.95 of 1ETH were available.
Long-term stakers and hodlers are not at risk from the depegging. Anyone who has leveraged against the asset runs the risk of liquidation. Three Arrows Capital and Celsius Network are two examples of defunct companies that have been identified as major users of stETH.
The peg is at the right ratio as of the writing. offering A 1:1 exchange is available for ETH and stETH. However, 1inch, the partnered DEX aggregator, is offering a 2.36% discount on mint stETH. This means that depositors will be able to get more stETH value than they deposit through 1inch.