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EVERYTHING YOU NEED TO KNOW ABOUT LIQUID STAKING – LIDO FINANCE


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Myron Dsilva — Published On October 13, 2022 and Last Modified On October 13th,
2022
Banking Beginner Blockchain

This article was published as a part of the Data Science Blogathon.


INTRODUCTION

Applications of blockchain technology are evolving. Each new application is
overcoming the current challenges faced by applications. Currently, while
staking your crypto assets, users require a particular account of tokens to
stake; these tokens are locked for a certain time and illiquid. This is where
liquid staking comes in to solve the problems stated above.

In this guide, I will walk you through lido finance, a liquid staking
application.


WHAT IS LIQUID STAKING?

To understand liquid staking, we need o know what’s staking.

Staking:

Staking is locking your cryptocurrency assets for a fixed or variable period. By
doing so, stakers have rewarded a yield for staking the assets. By staking,
users secure the network. The more amount of tokens staked on a network, the
greater the security of the network. Network here refers to a blockchain.

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Liquid Staking:

Liquid staking removes the drawbacks of traditional staking methods. In liquid
staking, once you deposit (stake) your native tokens on the platform, you
receive an st token that represents their staked tokens on a 1:1 basis. Users,
in addition to earning the staking yield, can earn additional yield using these
st tokens. One application of the st token is discussed in the later sections of
the guide.

For example, if a user stakes 2 ETH tokens, the user will receive 2 stETH
tokens.



To learn more about liquid staking, click here.


WHAT IS LIDO FINANCE?

Lido Finance is a decentralized application (dapp) that offers the feature of
liquid staking. Lido currently has close to $6 Billion in total value locked
(TVL) on the platform with 199k+ stakers securing the protocol. Lido has been
audited by some of the industry’s top blockchain security companies, including
Quantstamp and Mixbytes.

Source:
https://coingape.com/defi-protocol-lido-finance-hits-a-whopping-19-52-billion-in-tlv/

Lido currently offers liquid staking for five cryptocurrencies – Ethereum (ETH),
Polygon (MATIC), Solana (SOL), Kusama (KSM), and Polkadot (DOT). Lido is working
on integrating more assets and chains on the platform such as Avalanche (AVAX),
Near Protocol (NEAR), and many more will be integrated in the future.


WALLET AND BLOCKCHAIN 

Wallet:

A crypto wallet is required to interact with any Web3 protocol. To interact with
Lido Finance, I will be using the Phantom Web Wallet.

Source: https://phantom.app/download

Phantom is a Web3 crypto wallet built on the Solana blockchain that enables
users to store, send, receive, buy and swap their crypto assets in a secure and
decentralized way.

To learn more about the phantom wallet and its applications, click here.

Blockchain:

As stated above, Lido currently offers services of five blockchains. In this
guide, I will be connecting the Lido protocol to the Solana blockchain to
demonstrate the functions and features of Lido Finance.

Source: https://forkast.news/what-is-solana-why-hottest-blockchain/

Solana is a layer – 1 blockchain known as the “Ethereum Killer”. The Solana
blockchain has a high TPS, transactions are quick and the transaction fees are
very low (< $0.01).


LAUNCH LIDO APPLICATION

To navigate to the Lido Finance website, click here.

On navigating to the website, follow the below steps to launch the application:

 1. Click on the Stake now button.
 2. Click on the Stake now button for the respective blockchain (Solana in our
    case).
 3. You have now launched the Lido protocol for the respective blockchain
    selected.






CONNECT WALLET TO LIDO

Once the application is launched, the next step is to connect your Web3 wallet
to interact with the protocol.

You may connect your Web3 wallet by following the steps below:

 1. Click on the Connect wallet button.
 2. Tick the checkbox to agree to the terms and conditions.
 3. Select the Web3 wallet of your choice (Phantom in our case).
 4. Click on the Connect button in your wallet.
 5. Your wallet has now been connected to the protocol. You can view your wallet
    balance and details once it is connected to the protocol.





STAKE TOKENS

By staking your $SOL tokens, you will earn a yield on your stake as well as
receive an equivalent amount of $stSOL tokens as proof you have staked the
tokens. The current APY for staking $SOL tokens is ~ 5.6%.

You may stake your $SOL tokens by following the steps below:

 1. Enter the amount of $SOL tokens you want to stake.
 2. Click on the Submit button.
 3. Click on the Approve button in your wallet to confirm the transaction.
 4. Click anywhere on the screen to continue.
 5. You may check your wallet, the equivalent amount of $stSOL tokens has been
    credited to your wallet in place for the $SOL tokens.
 6. Furthermore, you can view your $stSOL tokens on Lido’s page.




You can now harness the power of liquid staking and earn an additional yield on
your staked tokens ($stSOL tokens).


APPLICATIONS OF THE STAKED TOKENS

After depositing your native tokens (SOL) on Lido, you receive st tokens
(stSOL). These tokens can be used further to generate additional yield in
several ways. There are several applications for the st tokens (stSOL). In this
guide, I will go through how to earn additional yield using the stSOL tokens by
adding liquidity to protocols.

To earn additional yield, follow the steps below:

 1.  Click on the Solana DeFi option in the navbar.
 2.  Select a liquidity pair.
 3.  You will be redirected to a decentralized applications page. Click on the
     Connect wallet button.
 4.  Click on the Connect button in your wallet.
 5.  We need to add liquidity to the token pair to get LP tokens. Click on the
     Add liquidity button.
 6.  Enter the number of tokens you want to add as liquidity for the first token
     pair.
 7.  Enter the number of tokens you want to add as liquidity for the second
     token pair.
 8.  Tick the checkbox.
 9.  Click on the Deposit Liquidity button.
 10. Click on the Approve button in your wallet to confirm the transaction.
 11. Click on the Stake button.
 12. Click on the Approve button in your wallet to confirm the transaction.
 13. Your LP tokens have now been staked and are earning interest.









RISKS

Since decentralized applications are still in their infancy, they have several
risks. Some of these risks include:

Smart contract risks – The working behind decentralized applications and most
smart contracts. Smart contracts are pieces of code that perform a certain
instruction when a condition is met. These codes May have bugs associated with
them, due to which a hacker may be able to hack the contracts and exploit the
funds.

Impermanent loss – Impermanent loss refers to the change in the asset’s price
from the time you staked it. For example, if you had purchased SOL at $100 and
staked it at that price and The current Price of SOL becomes $50, you are at an
impermanent loss of 50%.

Price of st token – The price of the staked (st) may depeg from its original
price as the staked token has a low market cap. For example, the price of SOL is
$100, and the price of stSOL maybe $80.


CONCLUSION

There you go; you know know how to use Lido Finance to generate additional Yield
for staking your assets. The applications of the staked tokens (st) you receive
after staking your native tokens are unlimited. Each application may have a
separate number of risk associated with it. Hence, please conduct intensive
research before staking your assets.

All the content in this article is purely for educational purposes and does NOT
provide any financial advice. If you have enjoyed this guide, please let me know
in the comments and consider following. Thank you for your time.

Key Takeaways

 * Lido finance is a liquid staking decentralized application.
 * Liquid staking allows you to generate additional yield for staking your
   assets.
 * Lido Finance currently offers liquid staking for five cryptocurrencies –
   Ethereum (ETH), Polygon (MATIC), Solana (SOL), Kusama (KSM), and Polkadot
   (DOT).
 * Some of the applications of staked tokens (st) include providing liquidity,
   swapping, lending, borrowing, and many more.
 * NO content in this guide provides any kind of Financial advice.

The media shown in this article is not owned by Analytics Vidhya and is used at
the Author’s discretion.


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Duration: Oct 21 - Oct 27



TABLE OF CONTENTS

 * Introduction
 * What is Liquid Staking?
 * What is Lido Finance?
 * Wallet and Blockchain 
 * Launch Lido Application
 * Connect Wallet to Lido
 * Stake Tokens
 * Applications of the Staked Tokens
 * Risks
 * Conclusion


ABOUT THE AUTHOR



MYRON DSILVA




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