The Lido liquidity staking protocol enabled ethereum withdrawals for the first time, according to data from Parsec Finance on May 15. Over 260 Lido Staked Ether (stETH) redeemed for its base Ether, For the first three hours, it's worth about $500,000. Lido is a Liquid Collateralized Derivatives (LSD) protocol that allows ETH holders to stake their tokens to participating validators and earn additional ETH as rewards. When users stake their ETH to Lido, they receive stETH in return. As users earn ETH through staking, their stETH amount increases to reflect the additional rewards.
However, before the April 13 Shapella upgrade, Ethereum did not allow validators to withdraw the ether they held in the staking contract. Even after Shapella, Lido users were unable to withdraw their ETH because Lido’s software had no withdrawal functionality. But on May 15, the Lido DAO voted to upgrade Lido to version 2, allowing withdrawals for the first time.
Data from Parsec shows that it took about an hour for stakers to realize they could withdraw. The first hour of withdrawals generated around 4 ETH ($7,308) in stETH redemptions. But over the next hour, redemptions ballooned to about 227 ETH ($414,956). Over the next hour, the rate of redemptions dropped to about 44 ETH ($80,388). Over $500,000 worth of ETH was withdrawn within the first three hours of enabling withdrawals. Liquid staking solutions have grown in popularity since the Shapella upgrade. According to DefiLlama, on May 1, liquidity staking became the highest decentralized finance category in terms of total value locked, surpassing even decentralized exchanges. However, the SEC recently stated that it may treat collateral providers as issuers of securities, so there are still some legal issues regarding liquidity staking in the US.
