The native token behind Lido Finance surged more than 10% over the past 24 hours, jumping from roughly $4.25 to a peak of $4.82, according to data pulled from CoinMarketCap. LDO has since retraced some and is now trading at $4.56, up 6.7% on the day.
The project’s token is a governance token, letting holders vote on proposals and adjust fee parameters within Lido Finance.
Today’s move is only the latest in what has been a very bullish week for LDO; in the last seven days, the token has risen by over 25%. On March 28, the token was trading at $3.66. Looking back even further, LDO has more than doubled its value over the past month.
The bullish price action behind this little-known cryptocurrency is likely tied to the Ethereum 2.0 upgrade, in which the number two network will shift from a proof of work (PoW) consensus mechanism to a proof of stake (PoS) one.
This shift has been called “The Merge” and is expected to occur by the end of Q2 “or possibly slipping into Q3,” according to ConsenSys CEO and Ethereum co-founder Joe Lubin.
What is Lido Finance?
Lido Finance is a staking project that lets users deposit their Ethereum holdings and earn a yield. This is different than providing liquidity on a decentralized exchange (DEX); instead, these deposits are used to help secure the PoS-based Ethereum 2.0, which was recently rebranded to “Consensus Layer.”
Like miners on a PoW network, PoS networks need validators to ensure that the network is approving legitimate transactions and rejecting fraudulent transactions. And unlike miners, which demand a huge amount of computing hardware and energy, users can become validators by “staking” the network’s native cryptocurrency.
In the case of Ethereum, users can become validators by staking 32 ETH.
At today’s prices, though, that comes out to a whopping $111,921 and is prohibitively expensive for most users.
Additionally, by staking that 32 Ethereum, you’ve locked it up, and it cannot be redeemed until the transition has been executed. So, it’s a lot of money to have in limbo for any period.
Lido attempts to solve this.
Users can deposit any amount of Ethereum they like and earn 3.9% paid out in Ethereum. And though you cannot unstake this Ethereum, you receive another cryptocurrency in exchange that acts as a receipt for your activity. This token is called “staked Ethereum” or “stETH.” One stETH is equal to one ETH.
And as stETH finds more adoption within the broader decentralized finance (DeFi) ecosystem, users can earn additional yield on this asset on platforms like Curve and Aave.
Increased adoption coupled with anticipation around the Ethereum Merge event has likely been the key reason for LDO's rise.