Lido Finance, a decentralized finance startup that provides liquidity as a service (LaaS), as well as working as a third-party staking pool operator for Ethereum 2.0, has announced plans to expand its platform to Ethereum’s Layer 2 space.
Layer 2 solutions are designed to scale the Ethereum network by moving some of the processing off-chain. This can help reduce congestion and transaction fees on the main network. Layer 1 is formed by the Ethereum blockchain, while Layer 2s are distributed ledgers built on top of the L1 that extend and scale Ethereum by performing transactions off of the Ethereum Mainnet.
The announcement comes alongside Lido’s disclosures of a proposal in which it is seeking to secure roughly two years worth of “operating runway” for its decentralized autonomous organization, Lido DAO. The amount is said to be aimed at being financed through stablecoins.
Lido’s plans for expansion will reportedly begin by supporting staking for Ether ($ETH) through bridges to Layer 2 solutions. This will be done by using a wrapped version of Lido’s ETH staking token ($wstETH). The operational rationale behind this is to enable users to directly stake on Layer 2 solutions, without having to bridge back their assets on the Ethereum mainnet.
Ethereum’s Layer 2 space is currently being developed by a number of projects such as Plasma, Optimism, Celer Network, and Loopring. Lido’s expansion into this area will help it compete with other staking providers such as Staked, Bison Trails, and Kraken.
The move also signals a shift in focus for Lido, which until now has been focused on providing liquidity as a service. This is in line with the company’s roadmap, which had hinted at plans to move into staking and other areas of DeFi.
The team at Lido believes that by expanding its platform to support Ethereum’s Layer 2 solutions, it will be better positioned to provide a more scalable and efficient service to its users. It remains to be seen how the market will react to this news, and whether Lido will be able to successfully compete in the already crowded DeFi space.
Lido is, at the time of writing, the leading provider of staking services for Ethereum, with around a third of staked ETH (stETH) having been deposited. Lido claims to currently have over 4.25 million Ether (USD 6.5 billion) invested on its platform.
According to Lido, the project was designed to be “network-agnostic” in that it could eventually support multiple Layer 2 solutions. However, the team has decided to focus its efforts on Ethereum for now, perhaps due to the platform’s “dominant position” in the crypto industry, while still planning on expanding to other L2s as they progress and scale. To date, Lido has bridged its staking services with Argent and Aztec, two ZK-Rollup projects that have been gaining traction in the space. Lido also plans to launch its staking bridge on Optimism and Arbitrum.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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