Why Ethereum liquid staking is set to surge in 2023

More security, tougher competition: Ethereum's Shanghai upgrade will probably cause staking business to grow massively.

More security, tougher competition: Ethereum's Shanghai upgrade will probably cause staking business to grow massively.

Crypto is going through a painful bear market. One growth area: liquid staking on Ethereum. Next year it should boom. That’s because the second-largest blockchain plans a big upgrade that removes current uncertainties around staking. The new upgrade is called Shanghai and is slated for rollout in March 2023.

Ethereum has been running on the Proof of Stake consensus algorithm (PoS) since the merge in September 2022. In this setup, the billion-strong network is secured by validators and their staking in Ether. They in turn receive Ethereum in exchange for their service. This can earn up to four percent interest.

Shanghai upgrade is an opportunity for liquid staking

Right now, only about 17 percent of all ETH in circulation is staked. The problem is that once Ethereum is staked, it can't be unstaked. For many investors, that's a big risk. With Shanghai you’ll finally be able to withdraw your coins.

So-called liquid-staking providers will likely be the biggest beneficiaries. They act as pools where investors park their coins. To become an active validator you need at least 32 ETH, the equivalent of several thousand US dollars. At a liquidity provider, you can start with smaller amounts — for a small fee.

More competition and more choice for users

The first and largest of these services is currently Lido, holding more than 75% market share. That concentration has sparked controversy in the past. Some worry it could threaten network decentralization. While Lido remains dominant, it’s increasingly facing competition from smaller protocols like Rocket Pool, StakeWise, and Swell, which offer product improvements.

Rocket Pool, for example, provides more protection against so-called slashing, where rewards are withheld for dishonest behavior. And because of a different mechanism, less of the profits are taxed. One drawback: you need 16 ETH to start staking. The entry fee is set to drop to 8 ETH soon.