Floating stake tokens to fuel the next DeFi boom

The decentralized finance (DeFi) space has been in correction mode, its current TVL of $50 billion representing less than a third of its peak at the end of 2021. The good news is that the market is gearing up for another wave of DeFi adoption, primarily thanks to liquid staking tokens (LSTs), which have become the second largest DeFi sector after decentralized exchanges (DEXs).

LSTs revolve around the Ethereum ecosystem, allowing Ether (ETH) players to take advantage of yield farming opportunities while their ETH tokens are locked to maintain the network that was recently upgraded to a proof-of-stake (PoS) consensus mechanism. Liquid staking protocols provide users with LSTs in exchange for their locked ETH based on a 1:1 ratio to allow them to explore DeFi use cases during the staking process. Some protocols call these replacement tokens “liquid staking derivatives” (LSDs), but LST is a more accurate term since it represents ownership of staked ETH.

How will ETH’s Shanghai upgrade affect the DeFi space?

After the Shanghai upgrade (aka Shapella), more ETH is expected to be staked, which will stimulate the liquid stake sector and boost DeFi. We may see another DeFi boom similar to the one in 2020 when Compound and its native token COMP made waves to spark the DeFi summer. This time, LSTs have the chance to become the face of DeFi instead of DEXs and lending protocols.

Shanghai is a major Ethereum upgrade that allows stakers to withdraw their staked tokens for the first time since the Beacon Chain was integrated in late 2020. It is estimated that around 1.1 million ETH tokens have become instantly withdrawable. While some of it will likely be sold through exchanges, a large portion of it could be used for staking purposes again, and this time floating staking protocols will be flooded.

With the Shanghai upgrade already active since mid-April, we may see a gold rush of LST adoption, with the DeFi community embracing LSTs for their ability to be the “internet bond” and provide a natural form of return. This could cause DeFi protocols to race to move forward by integrating LSTs. The faster DeFi protocols integrate LSTs, the greater the chance of securing a better place in the upcoming DeFi race, as the Shanghai update is expected to increase demand for staking services that also provide ROI opportunities.

This fluid intervention protocol addresses the main obstacles in the LST space

Even before the impact of the Shapella upgrade becomes apparent, floating staking protocols are popular due to their unique functionality. Nevertheless, many of them deal with a number of pain points that affect user satisfaction. One of the challenges is the complexity of token models, which can create confusion for users who may struggle to understand the mechanics and implications of their investments. This complexity can stem from the different tokenomics, reward structures, and risk profiles of different protocols, making it difficult for users to navigate the ecosystem and make informed decisions.

Another major problem is poor user experience, which can be attributed to a lack of user-friendly interfaces, inadequate documentation and inadequate support services.

High fees are also a problem in some liquid staking protocols, as they can eat away at staking returns and reduce the overall attractiveness of liquid staking.

One of the few floating staking protocols working to address these challenges is Swell, which allows users to stake ETH and receive swETH to start earning rewards in DeFi. Although there are many floating betting options, Swell aims to fix all the problems and compile the best offers into a user-friendly experience. Focusing on simplicity, Swell enables ETH players to seamlessly dive into the journey of DeFi through its non-custodial decentralized application (DApp).

Source: Swell

In addition to an improved user experience, Swell is reducing fees to unlock more rewards for users. As a rule, the fee rate for betting varies from 10% to 25%, and can go even higher. With Swell, users can expect no protocol fees for a limited period of time.

Swell also places great emphasis on security, especially as the DeFi market has been plagued by hacking attacks and fraud. The protocol has been audited by high-profile blockchain security services including Sigma Prime.

Swell can help DeFi projects, including lending protocols, DEXs and yield farming services, attract more users and ensure a continuous growth of the sector’s TVL. Meanwhile, individual players can start earning rewards without any deposit barriers.

With the DeFi race fueled by liquid staking gaining traction, Swell will contribute to the next DeFi transformation by helping DeFi protocols grow their communities while providing stakers with the best return opportunities.