Featuring Lido, Curve, Balancer, Convex, Aura, and of course Sturdy
With staked ETH now able to be unstaked, the Shanghai/ Capella upgrade has completed Ethereum’s transition to PoS. ETH holders, stakers, and LST users have been debating for months in advance about what will happen to yields as a result of the change. Thus far a couple of major players, namely Lido and Coinbase, have dominated the staking market, but new players are emerging such as Frax and Rocket Pool with their own liquid staking tokens. The prevalence of LSTs has also led to new opportunities for earning yield on those assets, which is one of Sturdy’s specialties.
With the dynamic state of the ETH market, you might be wondering how different staking options stack up, and how to maximize yield on LSTs? Let’s get into it.
Market Structure
Staking Services
Staking solutions like Lido allow ETH holders to participate in the network without needing the 32 ETH required to operate their own node. The business model is relatively simple, as stakers earn Ethereum transaction fees and the staking solutions take a cut. The cut differs for each; Lido, Frax, and Stakewise take 10% of fees generated, RocketPool 14%, and Coinbase 25%. Along with taking the largest cut, Coinbase is the only centralized platform out of the top 5 staking solutions. Typical fee earnings for stakers on these platforms are around 4.5% APY, varying based on the cut taken, as well as the fees earned and MEV collected by the platform’s node operators. On a larger scale, returns on staked ETH reflect the overall volume of transactions on Ethereum, so increased usage and high-traffic events like major NFT mints can cause fees to spike.
Previously, staked ETH was not able to be unstaked, but those days are over thanks to the April 2023 Shapella upgrade. Staked ETH can now finally be withdrawn, with 16 withdrawals permitted per block. What does this mean for the market? Withdrawals being enabled de-risks the act of staking since assets are no longer locked indefinitely, but the limited rate and sheer size of the network means withdrawals won’t be performed instantly. The prevailing thought is that due to the percieved lower risk, enabling withdrawals will raise the ETH staked percentage. This rate currently sits well below that of other PoS networks at around 15%.
Liquid Staking Tokens
Since staked ETH is locked while being used to secure the network, staking services have created LSTs, liquid tokens which represent the underlying staked assets. Examples include Lido’s stETH and Rocket Pool’s rETH. These assets have seen a massive influx over the first quarter of 2023, with total LST volume doubling from $7.5B to over $15B.
LSTs can be used in the wider DeFi ecosystem, while the underlying ETH remains staked and earns fees. The liquid nature of these tokens means while they do represent a claim to an equal amount of staked ETH, their price can trade independently and often does so at a discount to non-staked ETH. The fact that the upgrade makes staked ETH more liquid should serve to mitigate these price deviations.
Earning Yield on LSTs
LSTs increase the capital efficiency of ETH staking, since the tokens can be used for other DeFi functions such as usage for collateral, or providing liquidity for LST trading pairs. When it comes to maximizing returns on ETH staking, the opportunities available for each flavor of LST are going to determine the top options since base staking fees earned are generally all around 4.5%. Here’s a look at how yield farmers can climb up the ETH yield asset pyramid, then take those yield-bearing assets to Sturdy and supercharge returns by using leverage.
LP Strategy
LSTs like stETH and FrxETH need liquidity pools to facilitate trading just like any other token. ETH stakers can deposit their LSTs to pools where they’ll earn trading fees from the pool on top of the Ethereum transactions fees they’re already earning.
For example, Curve stETH LPs are currently earning 2.7% APY in the base stETH pool, and 5.7% in the concentrated stETH pool. Balancer offers comparable returns with its wstETH/WETH pool ranging from 2.75% — 4.89%.
So now you’re earning 4.5% on the initial staked ETH position, plus yield from LPing the LSTs. Let’s take things a step further, shall we?
Sturdy for Leveraging LST LP Tokens
LST LP tokens sit atop the pyramid of assets in the ETH staking market, but there’s more yield to be earned with them beyond just collecting pool fees. This is where Sturdy comes into play.
The biggest innovation of dexes like Curve and Balancer is their governance systems, which involve locking governance tokens CRV or BAL to receive voting power in the form of veCRV or veBAL tokens. Voting power is used to direct rewards to individual pools, boosting rewards for LPs in the pool and incentivizing liquidity. This system has led to the rise of Convex and Aura, platforms that make it easier to farm yield through Curve and Balancer and offer their own token rewards to further boost yield.
On Sturdy users can deposit their LST LP tokens, either Curve stETH/ETH or Balancer wstETH/WETH, to receive boosted yield because Sturdy takes these LP tokens and stakes them on Convex for you. This adds another layer to the ETH yield farming pyramid, so now through using Lido, Curve/Balancer, and Sturdy an ETH staker is earning ETH transaction fees + Curve or Balancer trading fees and CRV or BAL token rewards + Convex CVX rewards through Sturdy.
But wait there’s more. On Sturdy, you can get up to 10x leverage on your Curve or Balancer LST LP tokens! At maximum leverage, the APY’s for stETH/ETH and wstETH/WETH are 51.75% and 26.17% respectively. Of course, leverage always includes additional liquidation risks and typically increased gas fees, but if you’re looking to absolutely max out your ETH yield then you’re in the right place.
Summarizing the Strategy
- Stake ETH through Lido, earning ETH transaction fees and receiving stETH tokens representing your staked position
2. Provide liquidity in Curve or Balancer pools using your stETH and vanilla ETH as the pair token, earning trading fees and CRV or BAL rewards and receiving LP tokens representing your position
3. Deposit wstETH/WETH or stETH/ETH LP tokens on Sturdy, earning yield from Sturdy staking those tokens on Convex or Aura
4. Optional- leverage your Sturdy deposit up to 10x to further boost the yield
In Conclusion
ETH staking and LSTs have already experienced monstrous growth this year in anticipation of the Shapella upgrade. Now that it’s been implemented and ETH can be withdrawn, staking is significantly less risky. With this in mind, stakers may be more inclined to take on some additional risk in the form of yield farming strategies, combining LSTs, Curve/Balancer LPs, and leverage on Sturdy to supercharge ETH yields.
There’s a reason why top yield farmers use Sturdy, come join them at https://app.sturdy.finance/markets.
