Booming Ethereum Staking: Why Isn’t Price Soaring?

• DeFi-locked assets have significantly decreased from their peak, causing concern despite the rise in Ethereum staking popularity.
• Liquid staking protocols like Lido and Coinbase have attracted billions in assets, offering more favorable yields than traditional DeFi lending.
• The Federal Reserve’s monetary policy and rising yields on government debt may be diverting investor attention away from stablecoin yields in the DeFi space.

Ethereum (ETH) staking has witnessed a remarkable upsurge in popularity, yet a persistent decline in locked assets within decentralized finance (DeFi) protocols raises questions about its impact and sustainability.

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The DeFi sector has witnessed a notable decline in locked assets. According to data from DefiLlama, the total value locked (TVL) within DeFi has plummeted from its pinnacle of $178 billion in November 2021 to less than $38 billion. Of this, nearly $21.8 billion is held in Ethereum protocols.

While the drop in DeFi-locked assets is perplexing, the rise of liquid staking protocols such as Lido and Coinbase provides some insight. Lido’s TVL has more than doubled since the collapse of the centralized exchange FTX in November 2022, currently sitting at $13.95 billion. Similarly, Coinbase’s staking service has attracted an additional $2.1 billion worth of ETH.

This shift towards liquid staking is attributed to the superior yields offered compared to traditional DeFi lending. For instance, Coinbase’s ETH staking rate stands at 3.65%, in contrast to Aave’s 1.63% yield rate. Additionally, the United States Federal Reserve’s hawkish monetary policy has led to rising yields on government debt, diverting investor attention away from stablecoin yields within the DeFi realm.

In summary, Ethereum staking’s rapid growth is changing the DeFi landscape, but the drop in locked assets in DeFi protocols raises concerns. The allure of liquid staking, offering attractive yields and enhanced liquidity, alongside external factors like the Federal Reserve’s policy, has cast a shadow over the anticipated price surge for Ethereum. 

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