Over the last six months the prospect of making easy passive income in crypto has become significantly less appealing.
Crypto lending giants like Celsius Network, Voyager and BlockFi (which offered yields as high as 20% APY) were obliterated during the crypto crash of 2022.
Earning a yield was put on the backburner as crypto investors hastily withdrew their crypto to safe locations (such as a hardware wallet).
Not all crypto yield products were frauds or ponzi schemes, however. Crypto staking has proven to be a resilient (and safe) method of earning a yield on proof-of-stake coins like Ethereum, Polkadot, Solana and Matic.
In fact liquid staking providers like Lido Finance have streamlined the entire process so that even relatively new crypto users should be able to earn interest on their crypto.
Here’s a closer look at the protocol and how you can use it.
What is Lido?
Lido Finance is one of the most popular ways to stake cryptocurrencies such as Ethereum, Solana, Polygon, and Polkadot. The Lido Finance platform allows users to delegate and stake these assets without requiring them to perform any of the technical requirements necessary to earn staking rewards. This means rather than becoming a validator to earn rewards, you can delegate your holdings to Lido, a validator, who then gives you a proportionate reward.
Lido is only available for proof of stake assets such as Ethereum, meaning assets such as Bitcoin will not be available to stake using Lido. In exchange for providing these services, Lido takes a percentage of your rewards, much like a commission when staking through a centralized exchange. Lido is also a decentralized autonomous organization (DAO), meaning the community votes on and approves changes to the platform with voting weight being determined by LDO (Lido’s governance token) holdings.
What is Liquid Staking?
Liquid staking is a form of staking that allows you to still trade and move assets that are staked. A more typical form of liquid staking is Cardano (ADA) staking, where you can freely trade or sell your staked ADA at any time, and your rewards will be based upon your running total during the staking period.
With Lido, when you stake you receive a token such as stETH (Staked Ethereum). This stETH entitles you to the redemption of your ETH rewards and your staked ETH, but is also a tradable token that you can also buy or sell. Keep in mind that if you sell or trade your stETH you can’t redeem the exact ETH you staked with Lido. In fact, there’s no traditional “un-staking”. Instead, when you want regular ETH, you simply swap your stETH for ETH on a decentralized exchange.
Liquid staking is in contrast to self staking.
What is Self-Staking?
Self staking is the more traditional process of staking done by you individually, meaning you delegate your stake (give your share to a validator to use without giving up custody of the assets). This is only useful for assets that have no major staking minimum, such as Cardano, which only requires you to have 8 ADA (about $2) to start earning rewards (this means Cardano is both liquid and self staking). Ethereum in contrast, requires you to stake 32 ETH minimum (over $25,000) to be a validator and earn rewards, unless you use a service such as Lido. It’s also technically quite challenging.
Similarly, Polkadot allows you to delegate your share to a validator, but you’ll only get rewards if you’re staking more than 100 DOT, and it’s a much more complex process than staking with Cardano or Solana, making Lido a good option for those who are less technically inclined or who have under 100 DOT.
What is a Delegator vs. Validator?
Most proof of stake cryptocurrency ecosystems have two types of staking parties: delegators and validators. A delegator gives their stake to a validator. You’re not giving them the assets themselves, but rather the power of “holding” the assets. Typically, multiple delegators give a validator access to their funds and the validator then uses them to participate in governance actions such as voting on proposals. This can be referred to as a staking pool.
Validators are responsible for verifying transactions taking place on the blockchain network. There is a higher technical and financial barrier to being a validator than a delegator. This is why validators receive a commission from their delegators’ rewards.
Of the assets Lido allows you to stake, Ethereum is the only one where you can’t delegate your share using your crypto wallet and staking pools. Instead, it requires you to be a validator to earn rewards or to join a service such as Lido’s that uses a smart contract system to allow those with less than 32 ETH to earn rewards.
How Much Can You Earn?
The interest you’ll generate by staking crypto (or liquid staking in this example) depends on the coin you are staking and how busy the network is.
For instance Ethereum has historically returned rewards of roughly 5%. That means if you staked $1,000 worth of Ethereum you’d receive $50 in free ETH every year. However, more activity on the market, means more staking rewards so you might generate a higher APY. That also doesn’t take price appreciation into account.
In an ideal world you might see the value of Ethereum double or triple so your rewards would theoretically blossom to 10% or even 20%.
Meanwhile coins like Polkadot (while not as popular as Ethereum) have historically offered much higher APYs, closer to 15%.
Step by Step Guide to Stake Crypto with Lido
For the purposes of this step by step guide, we’ll be using Ethereum and MetaMask as the example asset and crypto wallet, respectively. Lido allows you to stake Ethereum along with Solana (SOL), Polygon (MATIC), Polkadot (DOT), and Kusama (KSM).
The process for staking all of these assets with Lido is essentially the same, but will simply require you to use their respective crypto wallets such as Phantom for Solana. Polygon can be used with MetaMask, so its process is identical to Ethereum’s. That said, if you’re using a multi-asset wallet, such as a Ledger hardware wallet, or Trust Wallet, it’ll be the same process for each asset. Below are the steps required to stake crypto with Lido.
Step 1: Navigate to Lido’s Staking Page
The first step is to go to the Lido staking page: https://stake.lido.fi/
Step 2: Connect Your Wallet
Next, click “Connect Wallet” either in the middle of the page or in the upper right corner. You’ll then be shown a list of compatible wallets. Tick the box to accept the terms and conditions, then click the wallet you wish to connect.
Lido allows you to connect Brave, MetaMask, WalletConnect, Ledger, Coinbase, Trust Wallet, imToken, Ambire, Blockchain.com, Zengo, Exodus, Coin98, MathWallet, Tally, Gamestop, and XDEFI wallets.
Step 3: Confirm the Connection with Your Wallet
After clicking the wallet you wish to connect, your wallet will pop-up asking you to confirm the connection to Lido. Click “Next”, then “Approve”. Your wallet will now be connected to Lido.
Step 4: Enter the Amount of ETH You Want to Stake
Now that you’ve connected your wallet, you can enter the amount of ETH you want to stake into the box on the page. Then click “Submit”.
Step 5: Confirm the Staking Transaction in Your Wallet
You’ll then get another pop-up on the page saying to approve the transaction with your wallet. Your wallet will then pop-up for you to confirm your transaction. Click “Confirm” to approve the staking transaction.
Step 6: Done!
You’re now staking ETH with Lido. You can confirm that you’re staked by looking at the page you just staked on, as your staked balance will update.
Is Lido the Best Option for Staking?
For staking assets like Ethereum and Polkadot, which have high barriers to entry in terms of either cost or technical knowhow, Lido is a great option.
For assets like Solana and Polygon, their protocol already have fairly simple ways for users to delegate a stake and earn rewards while also being able to choose a validator with a commission that could certainly be lower than with Lido.
Overall, Lido is a good option for all types of users, but perhaps is only the best option for staking ETH and DOT.