Lido Finance Just Hit 1M Validators, But Can DeFi Really Take Over TradFi?

Ethereum ethereum restaking lido finance

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Thomas Musgrave

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Thomas Musgrave

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April 29, 2024 14:20 EDT

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Reaching a major milestone, Lido Finance, the leading liquid staking protocol on Ethereum, now controls over 28.5% of all staked Ether, raising questions about the potential of DeFi to challenge traditional finance (TradFi).

The April 29 achievement establishes Lido Finance as the largest decentralized finance (DeFi) protocol, boasting one million Ethereum validators and surpassing major players like Coinbase exchange, which holds 13.6% of staked Ether, according to Dune.

This surge in popularity can be attributed to the unique advantages liquid staking protocols like Lido offer users.

Users who stake their Ether with Lido receive the staked ETH (stETH) in return.

1 million validators pic.twitter.com/fELATWQPIu

— Lido (@LidoFinance) April 29, 2024

If they were to stake their Ether conventionally, their tokens would be locked and unusable for a certain period.

Liquid Staking is Fueling the Rise of DeFi

In the last quarter, the Total Value Locked (TVL) in Decentralized Finance (DeFi) increased by 65.6%, surging from a low of 436 billion in Q4 of 2023 to $97 billion in Q1 of 2024.

Currently, the price of DeFi TVL sits at $92.17 billion, according to DefiLlama.

Ethereum’s TVL growth of nearly 71% played a major role, primarily fueled by asset price increases and the practice of liquid restaking.

The total value locked (TVL) in liquid skating protocols has reached an impressive $47.7 billion, with Lido leading the pack by securing over $29.9 billion of that amount.

Concerns Regarding Lido Validators and Centralization

Crypto founders have recently voiced their worries about Lido’s growing dominance.

If a single staking token, like Lido’s stETH, becomes dominant under the DAO model, it creates a centralized point of control that is potentially vulnerable to attacks and governs a substantial portion of all Ethereum Lido validators.

Ethereum Co-Founder Vitalik Buterin has previously pointed out the potential centralization risks with Lido.

“With the DAO approach, if a single such staking token dominates, that leads to a single, potentially attackable governance gadget controlling a very large portion of all Ethereum validators,” he said.