Jan 4, 2023

Ethereum's "Shanghai" upgrade is expected to take place in March, triggering a price surge in liquid staking governance tokens like Lido DAO, SWISE, and RPL.

Video transcript

Ethereum Shanghai upgrade is expected to take place in March, triggering a surge in Ethereum like liquid staking tokens like Plio Dow and RP joining us. Now to explain why is Masari research analyst, Kunal Go? All right. Canal. Thanks for joining us. So maybe first of all, you could walk us through in our audience. What staking vs Liquid staking tokens? The liquid staking tokens are. Yes. Uh Thank you for having me on um Happy New Year guys. Uh So, you know, between liquid sticking and sticking. Um uh when you take your coins, you end up plotting them for a month, two months, three months, it wasn't really clear how uh you know, when he's uh withdrawals will, will, will, will you know, start happening. Uh What liquid sticking does is that it allows you to uh have an IOU that you can uh you know that you can trade on the market that you can still like lend and borrow against. So um it unlocks liquidity and that's why it's called a liquid taking derivative. So are you essentially staking Ethereum on the beacon chain, earning those rewards and then giving this iou to this staking liquidity protocol and getting all these extra tokens and trying to generate yield through them. Is that what how it works? Right. So, uh you know, when you're sticking for uh any of the proof of state chains, you typically get 4 to 5% yield. And uh you know, that's, that's your benefit from for securing the network. Um But the cost for that is that you give up liquidity uh when, when you get like a liquid staking derivative instead, you have to give up a of your uh of the of the staking fee that you earn to the to the protocol for the benefit of still maintaining your liquidity. So now what's happening in, in the market? What are we seeing happening right now? So explain kind of to, to everyone uh what's happening with these tokens uh A a and what's the interest and what's driving it? Yes, absolutely. So uh in, in uh December, uh the all course all courts of the team they met and they uh you know, they said that uh Shanghai Hard Fork is likely to happen in Q one, probably withdrawals will be enabled. So, withdrawals are important because they reduce the uh you know, I mean, right now in Ethereum, there is uh you can only deposit to the staking contract, you can't withdraw from it. And once withdrawals are enabled in uh you know, in the, in the Shanghai Hard Fork, um there will be very limited cost to staking. So as we see right now, uh if, if you stake today, then, uh you'll end up locking your tokens three months. Uh But once it all is alive, there is, uh, you know, you can get your tokens back within, within 27 hours and, uh there is very limited uh, liquidity risk. So that's, you know, that's the key driver for, uh the amount of ethereum to be staked to go up. Uh People right now are hesitant for staying for three months. Uh Once we're all alive, there is no such like risk for, for people to sort of be hesitant about. So that, that conceivably though will lower the yields, correct? Because if you, I, I if you take away that bit of a risk factor from, it, wouldn't that mean more people would go and stake and, and also that would lower that would potentially lower the yields. But also it's just the fact that it's, it's not as risky as it is anymore. So the people aren't demanding as much of a risk premium. That's the tradeoff, correct. Like we might not see these, the same yields as we've been seeing in the past. This is important, right? So real yields. Uh I mean, so there is like a couple of charts I think that really just explains the opportunity. One is what we have up right now with uh the amount of state to be only 14% versus upwards of 50% going up to 70% for so and so, uh that absolute number of each state is likely to definitely increase post withdrawals. Uh Like you said, that maybe as more ether staked, the uh the passenger stakes yield might go down a little bit, but that is more than offset by, by uh that may, that may come back, you know, when there is ether stake ratio so much lower than the other layer one coins. Yes, that's uh you know, the reason is because uh Ether is just locked for three months instead of uh you know, all the other chains have withdrawals enabled already. Uh they started as proof of state coins and you know, as a part of their feature set, uh withdrawals were were enabled. So I think for Solana, the uh one epoch is uh 72 hours somewhere along those lines. So you can always get uh within 72 hours, whatever Solana you state for Ether or, you know, we we uh the beacon chain went live in December of 2020 people who stay there and have been staying for more than two years now. So, uh that's why, you know, it wasn't clear in December of 2020 when uh staking withdrawals will be enabled. And now there is a harder timeline for us. Uh And, and that's really going to drive more youth to be staked. How long do you think this rally for these uh liquidity staking tokens will last, you know, some traders are skeptical of uh Lido's long lasting gains. Why is that? Uh So I can't really speak to, uh you know, the price but uh you know, it, it seems like uh people are expecting the first quarter before uh you know, before withdrawals actually go live, you know, it may be a sell the new kind of event. Uh I'm not sure about that, but uh fundamentally, there are two words for uh the amount of, you know, to, to, for the revenue that um Lider generates, one is the amount of each state and then li market share. So we know the amount of each state is definitely going to increase. It's only at a 14% now, maybe 35% maybe 50% eventually in, you know, like six months, nine months, 12 months. So we know that there will be a fundamental improvement, how early that get splits, you know, price within, whether it's price, you know, over time. Um I can't really speak to that.

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