February 25, 2023

🥛 Lido riding high on LSDs

GM. This is Milk Road, the February of crypto newsletters. We're the shortest & quickest of them all.

Here’s what we’re serving up for you today:

  • Lido and the future of liquid staking

  • This guy ran a crypto mine under a high school


LDO, Lido’s governance token, has surged ~200% so far this year. It grazed the $3.30 mark earlier this week, the highest it’s been since April 2022.

Anytime there is this much green on the screen, the Milk Man needs to know what’s up, so let’s dig in.

What’s Lido?

Lido is the big kahuna in the world of liquid staking. It offers liquid staking derivative tokens (LSDs) for all the major proof-of-stake cryptos like Ethereum, Solana, etc.

Wtf is an LSD?

They’re the easiest way to stake your crypto without having to lock it up. Before LSDs, you had to choose between:

  1. Staking through a CEX, which will charge you big fees on your staking rewards, plus they tend to go bust and lose all your crypto. Or…

  2. Staking on-chain, where you move your crypto to a hot wallet, choose between hundreds of validators, lock your tokens up, and likely watch 114 YouTube tutorials by the time you’re finished.

Instead, LSDs allow you to do like Elon and move straight to the end.

You simply swap your regular old ETH token for a shiny new stETH token, which is Lido’s ETH LSD token, and viola, your ETH is “staked”.

Behind the scenes, Lido takes your original ETH and stakes it for you. Your new stETH token serves as an IOU for your original ETH, plus the staking rewards your original ETH will now earn. You can then use the stETH however you want, including deploying it into other DeFi protocols to earn additional yield.

Whenever you want to “unstake” in the future, you simply swap your stETH back for ETH via any major DEX. But because the original ETH was staked by Lido and earned staking rewards along the way, you’ll receive more ETH back than you originally staked.

Now that we’re all on the same page, why is Lido’s token (LDO) pumping?

There are three big reasons investors are interested in LDO: The SEC’s recent crackdown on centralized staking, Ethereum’s Shanghai update, and Lido’s V2 upgrade.

Let’s break them down.

1/ The SEC is cracking down on centralized staking

The SEC’s crackdown on centralized staking (like Kraken) is like the guy eating a tuna fish sandwich on the bus. It’s driving stakers away from CEXs to decentralized options like Lido, where it’s less smelly.

So why can users still stake via Lido? Because Lido is decentralized and operates via a DAO.

Government agencies can’t go after Lido the same way they can a conventional company like Kraken.

2/ Shanghai and The Great Unstaking

“The Merge” migrated the Ethereum network from proof-of-work (requires mining) to proof-of-stake (staking replaces mining).

But there was one major problem: After you staked your ETH, there was no way to unstake it. The Ethereum devs only did half their homework and said f*ck it, I’ll turn it in anyway.

That will all change when the Shanghai update rolls out in late March. It’ll allow ETH stakers to easily unstake their ETH and then let Lido roll out its V2 upgrade…

3/ Lido announced V2 on Feb. 7

The big upgrade is that stETH holders will be able to directly unstake their original ETH from the platform, vs. instead having to swap between ETH and stETH via a DEX.

It also includes a feature called “Turbo mode” that will let Lido’s ETH stakers unstake their ETH much more quickly (~2 hours).

All of this news means business is booming over at Lido. They now manage over 30% of all currently staked ETH (5.1M tokens, worth $8.7B at current prices.) Woah.

That’s more than the three biggest crypto exchanges (Binance, Kraken, and Coinbase) combined.

That’s a lot.

The Milk Man’s Take: Things are looking good right now for liquid staking and Lido. The Feds can’t shut it down (yet), you get to earn passive staking income while holding a liquid asset, and the Shanghai upgrade could send the liquid staking market into… Turbo Mode.

Roadie homework: Check out Lido through our referral link, then hit reply to let us know if you staked your ETH.


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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.