DeFi money LEGOs - ETH, stETH, CRV and LDO
I did a DeFi thing the other day - I added liquidity to the ETH-stETH pool and staked on Curve.
Curve
This was my first experience using Curve. It’s been around for some time now and when I last checked was number three on DeFi Pulse behind Aave and Compound for TVL (total value locked) - so it’s a big deal. I’d taken a look at Curve a few times and then quickly looked away - have you seen it?? It’s not designed for DeFi beginners (or low-level intermediates either). But I think it’s intentionally done that way. It’s got a kind of ironic 90s design, that’s what the cool kids in DeFi are into.
Anyways I came into some stETH a couple of months ago (sold half of my Forth airdrop) and the other day I got some ETH by closing a leveraged MakerDAO CDP I created on InstaDapp V1 (InstaDapp had just come back on my radar following the recent airdropped release of their native token, INST - did not claim these, since I wanted out of their ecosystem) - a fun DeFi experiment I tried over two years ago. I’d been thinking about closing the InstaDapp CDP for a while - I just didn’t feel comfortable with the risk holding ETH in legacy smart contracts. I had about the same amount of ETH and stETH so it was a good time (you don’t need a 50/50 split between two tokens to add liquidity on Curve but I decided to anyways).
What is stETH (and LDO)?
stETH is a token that represents staked ether in Lido, combining the value of initial deposit + staking rewards - penalties. stETH tokens are minted upon deposit and burned when redeemed. stETH token balances are pegged 1:1 to the ETH that is staked using Lido. stETH token balances are updated when the oracle reports changes in total stake every day. stETH tokens can be used as one would use ETH, allowing you to earn ETH 2.0 staking rewards whilst benefiting from, among other things, yields across decentralised finance products.
stETH is good for folks that want ETH rewards but don’t have: either 32 ETH to stake; or the technical know-how to do it. The other thing is you get an ERC20 token pegged 1:1 to your ETH - a liquid asset you can use as a money LEGO in DeFi - cha-ching!
LDO is the governance token for Lido Finanace, the platform for folks to deposit ETH and receive stETH. Lido takes 10% of the rewards, a cost most people deem fair due to the fact that the stETH token is liquid, there are no minimum 32 ETH requirements and no associated costs that come with being a DIY staker. So with the 10% of rewards that LDO takes, their DAO treasury is starting to build so in time it’s expected that value will flow to LDO token holders.
Why not just convert all the ETH to stETH and hodl?
That’s great - you earn passive ETH by hodling stETH, so why go into the ETH-stETH liquidity pool? I asked myself the same question when I first heard about it. However it’s come to my attention lately that CRV is the hot token in DeFi, and who doesn’t want a hot DeFi token? I’m not sure how much CRV rewards I will earn but I’ll be checking my dashboard every so often to see how it’s tracking.
In addition I will also earn LDO rewards. There’s a nice twitter thread here from Flood Capital on the bull case for LDO. I’m sold. Lido will also be launching a similar token on Solana (stSOL) if that floats your boat, another source of revenue for the treasury.
So for now I’m happy to take an each-way bet on the success of ETH and DeFi upstarts CRV and LDO.
