Since the Ethereum Merge, LSTs (Liquid Staking Token) has been on a positive growth trend, and its market is worth around $17B today. Amazingly, this trend is still the beginning of growth for LSTs. Its potential to knock off Ether (ETH) from the market is very high because of the advantages it offers liquidity providers above Ether. 

Ethereum started allowing investors to stake their Ether to produce around 4% annual yield after the Merge. However, this yield depends on various factors, like:

  • The total number of ETH you stake.
  • The activities on the Ethereum network.
  • The number of transaction validators on the network.
  • The value that the maximum extractable value captures.

Primarily, this development is due to Ether’s nature, and the cryptocurrency is more stable when compared to other cryptocurrency assets. For other cryptocurrencies, the owners worry about their APYs (Annual Percentage Yields) and price volatility. On the other hand, Ether offers staking yields and price appreciation or stability. 

The Merge boxed ETH holders to make either of these decisions:

  • Hope to earn fees after providing liquidity with the Ether.
  • Staking their ETH and earning surefire yields. 

Liquidity Staking Tokens (LSTs) Will Solve Ethereum Merge’s Problems

red down trend arrow to emphasise  End of Ethereum's Dominance

Taking any of these decisions comes with a huge dilemma, and the problems are what LSTs intend to solve for Liquidity providers. 

Staking LSTs allows you to unlock the intrinsic value of your stake tokens. Hence, you will get a liquid “receipt” token to trade freely. You can also use these receipt tokens as collaterals to borrow assets from DeFi (Decentralized Finance) platforms. The case is different for Ethereum. Staked ETH are illiquid while they are still in the staking contract.

The fact that LSTs allow your assets to remain liquid even while in a staking contract will provide flexibility for you as a holder. Think about using your tokens for other activities while earning staking yields. Isn’t that amazing?

Hence, liquidity providers can stake their ETH tokens and earn yields while providing liquidity in AMMs (Automated Market Makers). In addition, you will enjoy lower entry costs from LSTs than when you do the regular ETH staking. LSTs have attracted new audiences and small-scale investors using this feature. 

Liquid Staking Tokens’ (LSTs) ‘s advantages could start a new era for entire cryptocurrencies, including Ethereum. In addition, it could be a significant player in the highly anticipated bull run. 

Moreover, the rising popularity of LST could be the end of Ether, Ethereum’s native cryptocurrency, dominance.

The Debates Around ETH Losing its Place to LST – What We Think

Whether LSTs will displace ETH in the Decentralized Finance ecosystem may not be up for debate. Liquidity providers know that supplying ETH to AMMs instead of LSTs will cost you around 4% annual yield. We are sure that this loss is not what Liquidity providers will want to make, especially if they want to maximize their APRs.

For now, many Liquidity providers are still unaware of these advantages. However, there are speculations that LSTs may dethrone or take Ethereum’s place when many liquidity providers discover the multiple benefits the tokens offer. 

Many investors may also argue that LSTS can’t run Ether out of the market because ETH is the second largest crypto in the world. What many of these investors forget is that the cryptocurrency landscape is still new, and it is evolving. The scarier fact is that the landscape evolves quickly because the community members are constantly looking for new and easier developments for earning money. 

The drive to want to make money in this ecosystem’s easiest and more efficient ways may push LST to the top of the list. Since LSTs offer a more effective method of earning yields, many liquidity providers may dump ETH for it.