How Long Will the Ethereum LSD Narrative Last? Talking 2023 Trends with Nansen’s Martin Lee

Ethereum Liquid Staking tokens are going through the roof. Lido is up 150% in a month, similarly Frax Shares, while other protocols, such as Rocket Pool, are also catching up. 

But that’s not all. NFTs are also seeing massive volumes for multiple consecutive weeks, showing little signs of slowing down.

The question now is for how long this positive trend will sustain – is it a dead cat bounce or the beginning of a much-awaited recovery?

To help us crunch the numbers and interpret some of the on-chain data is Martin Lee – a Data Journalist from the popular cryptocurrency analytics firm Nansen.

Liquid Staking Coins Trend Upwards, but for How Long?

Ethereum LSD, or liquid staking derivative coins, have been the hottest story of 2023 so far, with many of the protocols seeing tremendous growth in the value locked and, by extension – popularity.

To those unfamiliar with the concept, we have a comprehensive guide on Ethereum liquid staking. 

As opposed to staking directly into the Beacon depositor contract, LSD protocols allow users to stake their ETH and receive a synthetic version of it – a new token, per se – that can then be used across various DeFi applications to trade, farm, provide liquidity, and so forth.

Speaking on the matter, Lee outlined two major advantages that, according to him, are part of the reasons why the narrative has grown so strong. For instance, h outlined that staking ETH directly into the smart contract is “really capital inefficient” because of a few things. First, the capital requirement is quite considerable (32 ETH), and the lockup period used to be unknown.

Therefore:

The natural solution to this would be liquid staking. You get a liquid token in exchange for whatever you’ve staked (in this case ETH). For example, if you stake ETH with Lido, you get stETH, which is fully liquid and you can interact with various DeFi protocols.

Liquid staking solves both the problems of the staked ETH being illiquid and the high capital requirement to participate in ETH staking.

Native tokens of LSD protocols, such as Lido’s LDO, for instance, have been on the run lately. LDO itself is up close to 150% in the past month, similar to other protocols of the kind like Rocket Pool and others.

The catalyst for this seems to have been the recent announcement that Ethereum’s Shanghai upgrade will hit the public testnet in February and the mainnet in 2023. This is a pivotal moment for the Ethereum community because it will allow validators to unlock the 32 ETH they’ve staked in the Beacon contract for the first time. The consensus seems to be that this would increase the demand for liquid staking alternatives, which is the predominant reason for the current popularity and increase in their valuations.

On when the narrative will inevitably die out, Lee says that most trends like this typically slow down on the date of the event that prompted their emergence in the first place – in this case, the Shanghai upgrade.

Typically, the trend dies out on the date of the event itself. For example, the ETH Merge was such a huge topic, but on the Merge date itself, people completely stopped talking about it.

NFT Volumes Also Pop

At the time of our recording, NFT trading volume was going through the roof, and even though there was a certain decline in the past couple of days, the market saw a considerable rebound.

In fact, by January 17th, ETH NFTs saw five consecutive weeks of up-only volumes.

Commenting on the matter, Lee said that it’s more or less this is in line with what we’ve seen in past cycles.

Whenever we have long periods of very boring action, where there’s basically no movements, prices are extremely stable, NFTs tend to go on their own mini-run whenever that happens.

In the past 2-3 months, the price action across the board was extremely stagnant. Then, NFTs kind of went on their own mini-run, with some projects doing better than others.

To find out what Lee thinks the trends of this year will look like, as well as whether or not the Shanghai upgrade will cause a lot of selling pressure on ETH’s price, don’t hesitate to watch the full video above.