Lido dominates on Ethereum, but struggles on Solana. Why?
Lido has a lead that looks ‘very difficult to beat’ on Ethereum, but doesn’t seem to have traction on other chains
Lightspring/Shutterstock modified by Blockworks
“For those of us who’ve been paying attention to crypto over the last couple of years, hacks are still incredibly real,” says Mike Ippolito.
Security in crypto ecosystems is often judged by what’s called the Lindy effect: The longer a technology hasn’t failed, the more likely it is to continue to not fail.
With all the potential value swirling around in liquid staking, such ecosystems tend to be attractive targets for unscrupulous attacks. Lido stands alone as the liquid staking leader on Ethereum, at least in part thanks to its history of maintaining solid security in a self-fulfilling Lindy loop.
“In order for you to justify not using the product or service of a leader,” Ippolito says on the Bell Curve podcast (Spotify/Apple), “the [competing] product has to be an order [or] two orders of magnitude better, and there’s just not that much to really differentiate within liquid staking.”
It’s this “Lindy-ness” that leads to liquidity, Ippolito says, which is ultimately what users want from a liquid staking protocol.
Solana’s liquid staking game
Due to the history of successful security on Lido, Ippolito expects it to remain the dominant liquid staking system on Ethereum. But he doesn’t necessarily expect this pattern to carry over to other blockchains. “Lido made a pretty unsuccessful play into Solana a while ago,” he says.
Referring to a conversation with Chorus One chief information officer Xavier Meegan, Ippolito explains that Lido’s network effects on Ethereum failed to travel to the Solana ecosystem. He expects to see a liquid staking provider eventually “take off” on Solana in a similar way that Lido has on Ethereum. “Maybe that’s JitoSOL. Maybe it’s Marinade. I think they’re the front-runner today,” he says.
In the conversation Ippolito had with Meegan, the CIO described the chicken-egg problem that Solana faces with liquid staking popularity, currently experiencing much lower DeFi traffic and total value locked (TVL) than Ethereum enjoys.
But the lack of “Lindy-ness” — a long history of network security — coincides with more opportunities for growth in a younger system that sees more competitors vying for dominance in a less established market, Meegan said.
Associate at the advisory and investment firm Reverie, Myles O’Neil doesn’t expect to see any “big technical disruption” that would unseat the existing incumbents in liquid staking’s near future on Ethereum. He suggests that yield is one area in which up-and-comers could attempt to compete, but says it’s “unclear exactly where that stacks up versus brand, security and Lindy.”
Offering one or two extra percentage points yield does not “move the needle enough to unseat Lido,” O’Neil argues, noting that the service’s liquid staking token (LST) is “not the highest yielding LST” by a large margin, yet it has managed to maintain dominance in Ethereum.
“I don’t see a lot of winners here,” O’Neil says.
“Lido is really well positioned for Ethereum,” he says, adding that he is less certain of how the liquid staking game plays out on Solana. “It is a little bit more fragmented over there,” he says, with more possibilities for competition.
Ippolito notes that liquid staking on Solana won’t necessarily ever attract the same kind of activity as it does on Ethereum. A major reason for this difference, Ippolito says, is the blockchain’s unique ability to be more liquid than Ethereum in the first place. “The more the protocol does on its own, the less opportunity there is available for external liquid staking providers.”
Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.
Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.
Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.
The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.
