Price Point: Bitcoin has managed to hold $22,000 as the European Central Bank has flagged it would raise rates by 25 basis points on Thursday. ETH continues to rally, up 5% on the day.
Market Moves: Omkar Godbole looks at staked eth’s expansion to layer 2 and how it could mean lower fees and more yield-generating opportunities for investors staking ether.
This web version of today’s First Mover newsletter was produced by Sage D. Young.
Price Point
Bitcoin (BTC) was trading up slightly on the day, as eurozone bond yields shot up after reports that the European Central Bank will discuss whether to raise rates by 25 basis points (0.25 percentage point) or 50 basis points at its meeting on Thursday.
BTC is up 15% over the last seven days, and Monday was the cryptocurrency’s best day in over a month.
Ether (ETH), the second-largest cryptocurrency by market capitalization, was trading at around $1,550 at the time of writing, a 5% increase on the day. The token of Ethereum Classic, the legacy chain that split from the Ethereum blockchain following a hard fork, is up 10% on the day, trading at about $25.
That comes as the Merge is a topic of conversation among traders and as the Ethereum Community Conference (EthCC) kicked off Tuesday morning in Paris. There will be more than 250 speakers at the event with a speech from Ethereum co-founder Vitalik Buterin on Thursday.
Ether’s options market flipped bullish on Monday, showing a bias for strength in Ethereum’s native token for the first time in over six months.
Other altcoins continued to rise on Tuesday, with NEAR up 12%, SOL by 9.5% and UNI by 5.7%.
In other news, crypto broker Genesis Global Trading has filed a $1.2 billion claim against the now insolvent crypto hedge fund Three Arrows Capital, according to a 1,157-page court filing uploaded by bankruptcy trustee Teneo.
Meanwhile, crypto lender Celsius Network laid out its mining-focused reorganization plan at its first bankruptcy hearing Monday.
Biggest Gainers
Asset Ticker Returns DACS Sector
Solana SOL +11.2% Smart Contract Platform
Loopring LRC +10.1% Smart Contract Platform
Decentraland MANA +7.6% Entertainment
Biggest Losers
Asset Ticker Returns DACS Sector
Bitcoin BTC −0.2% Currency
XRP XRP −0.1% Currency
Market Moves
Liquid staking, which allows users to stake cryptocurrencies while retaining a tradeable variant of the locked coins, will soon become accessible to investors wary of Ethereum’s high transaction costs.
Ethereum-based liquid staking giant Lido Finance announced plans to offer staked ether (stETH) – a derivative representing an equivalent amount of ether deposited into the protocol – on layer 2 products, which process transactions relatively faster and at cheaper costs than the Ethereum mainnet.
“For Ethereum stakers, this means staking with lower fees and access to a new suite of DeFi (decentralized finance) applications to amplify yields,” Lido said in an explainer blog published Monday. Lido’s stETH is heavily integrated into DeFi. Ethereum’s high transaction costs have kept retail investors from accessing DeFi, and so the launch of liquid staking tools on the relatively cheaper layer 2s could boost mainstream adoption of DeFi.
Layer 2 protocols run a separate blockchain on top of the main network, providing a secondary framework where transactions can take place. Once the transactions are processed, the data is sent back to the layer 1 network where it is stored in the blockchain ledger. That way, layer 2s help alleviate network congestion on the main network.
Polygon, Optimism, Arbitrum, and Loopring are some of the well-known Ethereum layer 2 tools that facilitate higher transaction throughput (expressed as a number of transactions per second) at lower prices to broaden participation, all the while retaining the security of the layer 1 blockchain.
While Lido didn’t announce a timeline for its layer 2 expansion, it did express commitment to offering liquid derivatives of staked tokens on various layer 2s with “demonstrated network activity,” starting with Arbitrum and Optimism.
Lido said it has already integrated with Ethereum smart wallet Argent to make wstETH, the wrapped version of the staked ether token, available on Ethereum-focused scaling platform zkSync. Earlier this year, the Aztec protocol unveiled its layer 2 tool on zkSync.
At press time, Lido controlled 90% of the $6.9 billion ether liquid staking market, according to Dune Analytics.
Lido users can stake their ether in return for stETH, which can be used on decentralized lending and borrowing platforms to generate an additional yield. Lido users can also avoid the burden of owning a minimum of 32 ETH to participate in staking – a process of holding coins in a cryptocurrency wallet to support the network’s operations in return for newly minted coins. Lido users can redeem stETH for ETH only after the completion of Ethereum’s transition from the proof-of-work to the proof-of-stake consensus mechanism.
Lido is confident that a large portion of economic activity will migrate to layer 2 networks in the future. The company plans to support wstETH bridging and staking in the early days of L2 expansion, eventually allowing “staking of ETH held by users on L2 networks directly from that L2 without the need to bridge their assets back to Ethereum Mainnet.”
stETH is supposed to trade close to the spot price of ether. However, the staked derivative slipped to a discount of 0.93 to ETH following the collapse of Terra’s algorithmic stablecoin UST in May.
The situation has improved somewhat, with the Ethereum developers recently announcing Sept. 19 as the tentative timeline for the long-awaited transition to a proof-of-stake mechanism.
The stETH discount to ether has narrowed to 0.98 since the announcement on Thursday. While ether has rallied by more than 30%, Lido’s governance token, LDO, has surged by 58%, according to data provided by CoinDesk.
