What Is Lido stETH and How Does It Work?
Key Takeaways
- stETH is the staking token of Lido which means that it represents the total amount of ETH staked on the platform and the collected rewards.
- Each stETH token should follow the price of ETH quite close to 1:1 ratio and increase thanks to rebasing each day.
- Using Lido, you may stake ETH without having to validate nodes yourself and your ETH will be spread among the professionals like Chorus One, Figment, and P2P.
- The staking service by Lido works in the way that the fees are charged only for the rewards and are shared between the operators of the nodes and the Lido DAO treasury but not from your initial deposit.
- stETH tokens may be traded, lent, used for providing liquidity and for other actions related to the staking of ETH via decentralized finance services.
- Withdrawal of stETH can be done via the native queue of Lido or via instant swaps on decentralized exchanges.
What Is Lido Finance?
Lido Finance is a platform for liquid staking that operates through the Ethereum blockchain network. This solution aims to solve the most important problem that appears in the standard mechanism of staking on the Ethereum network, namely locking of the tokens. As for staking on the network, then the deposited funds will remain locked during the entire time period of their participation in the security system of the network.
Lido has modified this mechanism. Upon depositing the required amount of ETH to the smart contract of the protocol, Lido stakes that amount of tokens on your behalf, and returns you stETH as the reward. These tokens are a kind of proof of the staked tokens and can be transferred or traded while earning profits from your deposits.
Lido Finance is one of the most popular protocols of liquid staking in the sphere of decentralized finance.
The History and Growth of Lido Finance
This protocol was launched in December 2020 after the release of the Beacon chain by Ethereum developers, which allowed proof-of-stake validation. But at that time, the direct staking of ETH was possible with 32 ETH and special skills that allowed you to be a validator of the network. The aim of Lido Finance was to remove such limitations.
During the early days of Lido, the total value locked of Lido grew fast because there were many users who wanted to earn money on their ETH but couldn’t do it according to the requirements of validators. This trend has only been boosted by switching to the proof-of-stake system, or The Merge.
After that, Lido has expanded its node operators network, improved the governance system with the help of Lido DAO and implemented additional functionality like withdrawal queue providing the opportunity for stETH holders to withdraw their funds back to ETH. Today Lido is viewed as one of the most developed liquid staking protocols on Ethereum blockchain with the value of secured assets in the protocol amounting to billions of dollars.
What Is stETH?
stETH stands for Lido Staked Ether. It is the token that is issued as a reward after depositing your ETH in the Lido protocol. To put it simply, it is a proof-of-stake of your ETH but, instead of being an inactive one, it is always providing you with revenue.
And these are the mechanics:
| Feature | Description |
| Ratio to ETH | Close to 1:1, adjusted through daily rebasing |
| Reward accrual | Balance increases automatically as staking rewards accumulate |
| Usability | Can be traded, used as collateral, or supplied to DeFi protocols |
| Redemption | Convertible back to ETH through Lido’s withdrawal queue or via DEX swaps |
stETH is a liquid staking token provided by Lido which gets its rebase daily that is, it increases your balance by the amount of the staking rewards that you get automatically. As you can see, unlike most of the other staking programs, here you do not have to withdraw your rewards manually since the result goes directly to your wallet.
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How Does Lido Staking Work?
Lido staking is designed to be relatively simple for people who have never been dealing with the validator’s infrastructure before. The following are the actions that you should take to start staking your ETH using Lido:
- Set up the wallet. Usually, MetaMask, Ledger or Trust Wallet are used to communicate with Lido’s smart contracts.
- Connect to Lido staking platform. This action can be performed via Lido’s official staking website.
- Deposit ETH. At this point, you choose the amount of ETH that you are going to stake.
- Receive stETH. In return, the protocol issues stETH for you in 1:1 ratio to the amount of deposited ETH and sends it to your wallet.
- Enjoy growing balance. As stETH gets rebase daily, you earn the rewards which mean that your balance is always growing.
On the backend side, Lido distributes staked ETH between more than 30 professional node operators that validate Ethereum network.
Lido stETH vs Traditional ETH Staking
With the information on what liquid staking is and how it differs from solo staking provided, one will understand why the vast majority of people choose Lido staking instead of the latter.
| Factor | Traditional Solo Staking | Lido Liquid Staking |
| Minimum ETH required | 32 ETH | Any amount |
| Technical setup | Requires running validator software | No technical setup needed |
| Liquidity | Funds are locked while staked | stETH remains liquid and tradable |
| Reward tracking | Manual monitoring | Automatic through daily rebasing |
| DeFi usability | Not usable elsewhere while staked | Usable as collateral, in liquidity pools, and more |
| Validator management | Your responsibility | Handled by professional node operators |
As we have already stated above, it comes down to simple logic. You have complete control over your validator when you decide to perform solo staking. When it comes to Lido staking, you get the chance to participate in staking in an easy way and obtain some extra liquidity, which does not require a person to have 32 ETH or even know how to set up the validator.
What Is stETH Used For?
stETH is much more than a receipt that reflects your contribution to the staking procedure. There are many use cases for stETH that are completely unrelated to the Lido protocol itself.
The use cases of stETH are:
- Receiving staking rewards without giving up your liquidity since you are not putting your funds in the lockup the way you do in solo staking.
- Using leverage to borrow funds using stETH as collateral.
- Providing liquidity since you can create pools on decentralized exchanges.
- Token swapping and trading on the exchanges and DeFi platforms.
- Earning yield by means of staking rewards and others.
It is the main feature of the appearance of the stETH LSTs as the token owners could choose between staking rewards and liquidity without giving up one or another.
Understanding the Lido Protocol
The below mentioned components are incorporated into the Lido protocol:
Smart contracts which conduct deposits, mint stETH and ensure the accounting in order to provide balancing of the token regarding staked ETH.
Node operators who receive their deposits of ETH via Lido and stETH are used for staking position as well as pooling of these node operators. The node operators control validators themselves which participate in the Ethereum consensus.
Oracles which supply the smart contracts with the required data such as validator balance and rewards and it enables daily rebasing of stETH balances.
Governance through the Lido DAO where all the decisions about parameters of the protocol, fees and updates are made.
Protocol fee of the Lido is equal to 10% of the staking rewards which are equally distributed between node operators and DAO treasury. It means that the protocol fee relates to the staking rewards rather than to the amount of deposited ETH.
The protocol was developed based on Ethereum and then expanded to the other blockchain networks, however, at the present time it becomes more centralized in regards to Ethereum.
Lido Staking Fees Explained
Fee structure of the Lido protocol has been made available in a lucid manner. Fees charged by the Lido protocol will be levied only on the earnings from staking the ETH and not from the deposit of the same.
The usual composition of the fees charged will be:
- The node operators will divide the fees for supporting the infrastructure and to maintain the operation of the validator network.
- The rest of the fee will go into the development of the protocol, auditing, and governance.
As the protocol fee will have no bearing on your deposit in any way, your deposit will remain unchanged. This will mean that your deposit will always allow you to earn stETH by daily rebase. In other words, while the gross ROI for staking is X%, the ROI from staking, after deducting the protocol fee, will be reduced, but the initial deposit of ETH, which backs the stETH, will not be affected.
Lido Staked ETH Price Today
Based on the latest data, the price of Lido Staked ETH (stETH) is traded in the range of $1,870-$1,920 USD, with a circulating supply of 9.3-9.5 million STETH and a market capitalization of about $18 billion. As stETH is expected to track the price of the native cryptocurrency, the price of stETH depends on the price of ETH and does not form an independent trading pair.
| Metric | Approximate Value |
| Price (USD) | ~$1,870–$1,920 |
| Circulating Supply | ~9.3–9.5 Million STETH |
| Market Cap | ~$18 Billion |
| Peg Ratio to ETH | Close to 1:1 |
To find out the price of Lido Staked ETH in Canadian dollars or any other currency, you should consult the latest price tracker, as crypto price is constantly updated.
Lido Staked ETH (STETH) Price Prediction: Will ETH Reach $50,000?
LDO Token vs stETH: What Is the Difference?
It can be confused with LDO, but these tokens have a different function within the Lido ecosystem.
| Token | Purpose |
| stETH | Represents staked ETH plus accrued rewards; used for holding and DeFi activity |
| LDO | Governance token; used for voting on proposals within the Lido DAO |
stETH is the token received in return for staking of ETH. LDO is the governance token giving its owners rights to participate in making decisions regarding fees, networks supported, and other changes in the protocol. There is no need to hold LDO to stake ETH or to own stETH.
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Is Lido Safe to Use?
There are several ways Lido has provided an extra level of safety for its users:
- Security Audits. The core smart contracts of the protocol have undergone external audit during their development.
- Validator Set Diversification. Distribution of staked ETH among dozens of professional node operators allows minimizing dependence on each of them.
- Daily Reporting. Regular reporting allows keeping the balance of stETH correct and consistent with the underlying staked ETH.
- DAO Management. Decisions regarding the protocol are being taken by the Lido DAO.
- Experience. Lido is one of the longest-running liquid staking protocols operating in the Ethereum ecosystem for many years. There is a large volume of value secured via this protocol.
Along with all those layers of protection, it is also important to consider the fact that Lido is one of the most widely adopted and analyzed DeFi protocols. This gives another level of security thanks to continuous testing of the protocol’s smart contracts and processes in real-world conditions.
As with any other DeFi protocol, the usage of official links, verification of smart contracts addresses, and proper securing of your wallet is recommended.
How to Withdraw stETH from Lido
There are two possible methods of converting your stETH back into ETH.
Method 1: native withdrawal queue
- Access the official Lido withdrawal page.
- Connect your wallet where you hold the stETH.
- Indicate the desired amount of stETH to be withdrawn and press the submit button.
- Wait until your request goes through the withdrawal queue; usually, it will take up to five days.
- Once completed, the corresponding amount of ETH will be transferred straight to your wallet.
Method 2: instant swap in a decentralized exchange
If you prefer a more instant approach, stETH can be converted into ETH almost immediately via decentralized exchanges and aggregators like Curve, Uniswap, and 1inch, normally at nearly 1:1 ratio. In this case, you sacrifice some price precision for immediate delivery, as the trade relies on current liquidity of the pool.
Is Lido Crypto a Good Investment?
If you would like to stake ETH via Lido, whether or not this decision suits your needs will depend on your personal circumstances, such as the investment horizon, the attitude towards long-term holding of ETH, and your comfort level with working within DeFi ecosystems. The main factors that people take into account are:
- Liquidity preservation. As opposed to locking ETH, stETH enables remaining active in DeFi while staking.
- Rewards accumulation. The rewards are compounded automatically via daily rebasing.
- Size of the ecosystem. Lido being one of the largest liquid staking protocols ensures liquidity and integration of stETH.
- Exposure to Ethereum. stETH correlates closely with the performance of Ethereum.
The information provided above is for educational purposes only and should not be treated as financial advice. In order to make an informed decision about staking or holding any cryptocurrency asset, conducting your own research and taking into consideration your personal financial situation is highly recommended.
Learn more: How to Buy Lido Staked ETH (stETH)
Conclusion
The main benefit of Lido stETH lies in providing a tool to earn some money passively by staking and at the same time keeping your liquidity in the form of your initial assets. After depositing your ETH in the smart contract of Lido, it will mint stETH which enjoys automatic rebasing daily and may be used in different DeFi applications. Thanks to having many professional node operators, transparent oracle reporting, and governance by DAO, Lido managed to become one of the best liquid staking services for Ethereum network participants. If you have just started to stake your coins on Ethereum or wish to understand better how the stETH operates, it is important to know some fundamentals of the protocol.
Key Terms to Know
In case you are a new user who wants to participate in Lido staking, the following terms may be found in relation to this protocol:
- Rebasing: it is a process when your stETH balance gets increased automatically daily due to earned rewards of staking.
- Validator: it is a part of Ethereum network infrastructure that helps to confirm transactions and provides proof-of-stake security.
- Node operator: it is a company that runs the validators for Lido and its customers.
- DAO (Decentralized Autonomous Organization): it is a governance system where Lido token holders make decisions about the protocol.
- Withdrawal queue: it is a process of returning your stETH to ETH via Lido.
- Peg: it is an exact 1:1 correlation between prices of stETH and ETH.
It is important to know these terms to get familiar with Lido staking and understand news about the protocol easily.
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