Instead of pausing ETH deposits, Lido Finance, one of the most popular DeFi liquidity staking protocols, activated the staking rate cap, the dApp, via a tweet on February 25.
The participation rate limit in Lido Finance
The participation rate limit is a safety measure after an increase in ETH deposits.
As of February 25, Lido Finance confirmed that there were over 150,000 ETH staked, a development that, while positive for smart trading network Ethereum, could also mean reward dilution and a likelihood that Lido will ask users who do not deposit more participation.
There could be more factors explaining the rise of ETH on Lido Finance and the liquidity staking protocol in general. Unlike Ethereum node operators, called validators, users can deposit any amount over 0.01 ETH and get rewarded for their stake. In the meantime, validators must not only lock 32 ETH, but also meet system requirements, including ensuring that their node operates with near 100% reliability. Furthermore, nodes must not act maliciously in confirming transactions. If they acted like this, their share would be drastically reduced.
Lido Finance is a common liquidity staking platform that provides an alternative to retail users who might be interested in staking ETH but cannot afford to purchase 32 ETH. However, turning on the staking fee cap means that the protocol will decrease the amount of stETH, an ETH derivative that users deposit into the platform, that can be minted. This will be dynamic and will be replenished block by block.
Lido Finance has assured its community that this limit will not affect most users. Those affected will be entities that may attempt to mint stETH in large quantities or when capacity is low. In that sense, the protocol advises users who encounter errors to try to mint low amounts or to wait for network capacity to replenish.
ETH Deposits Rise Ahead of Shanghai Update
As of February 26, Lido Finance had a total value locked in of $8.96 billion, of which $8.88 billion was ETH. This made it the largest DeFi protocol on TVL, surpassing MakerDAO and Curve. Meanwhile, $27.5b of ETH was locked in the official Beacon Chain escrow contract.
At the end of the first quarter of 2023, Ethereum will activate Shanghai. This hard fork will officially see ETH participants start withdrawing their coins from the Beacon Chain, which went live on December 1, 2020.
