Wrapped stETH (wstETH)

We take a look at the most famous and liquid staking derivative of Ethereum, namely wrapped staked ETH, or wstETH. It is a solution by Lido that’s here to increase the usability of staked ETH (stETH) across the whole of DeFi. Let’s take a look at what it means for the average ETH ‘enjoyooor’.

What is Wrapped stETH (wstETH)?

To understand wstETH, we need to understand what stETH is and how it was introduced by Lido. In a nutshell, wstETH is a wrapped version of Lido’s stETH, which is a liquid staking token (LST) crafted for you to  remain liquid while staking your ETH.

Because the primary challenge with stETH was its rebasable nature, as the balance increases daily when staking rewards are distributed. It wasn’t accepted on many protocols because you could have more or, more importantly, less tokens the next rebasement.

This is why wstETH was introduced, as it resolves these rebasement issues by keeping the token balance constant. We take a look at how it operates later in this article.

This review of Wrapped stETH (wstETH) was created for informational purposes. This article is not intended for promotion.

General info about Wrapped stETH (wstETH)

wstETH’s stable token count is particularly advantageous for a better integration with DeFi platforms that thrive on fixed balances, such as Uniswap and Yearn Finance.

Example of How wstETH Works

If you wrap 100 stETH, you might receive 99.87 wstETH in return. Despite the fixed number of wstETH, you continue to earn staking rewards. When unwrapping, your 99.87 wstETH could convert back to a higher amount of stETH, for instance, 101 stETH.

Contract Operations

wstETH operates through a trustless contract that accepts stETH tokens bidirectionally as it mints an equivalent amount of wstETH. Conversely, when a user decides to revert to stETH, the contract burns the corresponding wstETH and releases the locked stETH back to the user.

But this doesn’t need to be done as we described above. You can also take a shortcut where you directly send ETH to the contract’s address, and automatically your ETH is staked, you receive stETH, and it is wrapped into wstETH, without the need to do it manually.

Use case of Wrapped stETH (wstETH)

wstETH is an omnichain token, which means it operates across various blockchain networks such as Ethereum, Gnosis, Polygon, Optimism, Arbitrum, and many more.

On top of that, each wstETH token is backed by an equivalent amount of ETH that is staked on the Ethereum blockchain through Lido, meaning its value is directly connected to the underlying staked assets, ETH.

To manage its supply and maintain value stability, wstETH employs mechanisms for inflation control, such as token burning, despite its uncapped supply framework, because it will adjust in relation to the amount of ether being staked.

The supply dynamics of wstETH are characterized by its circulating supply, which stands at approximately 3,629,900.2 tokens, and a total supply slightly higher at 3,629,900.25 tokens.

wstETH can be used in different ways. These include:

  • Staking and Yield Farming: Engage in staking or yield farming to earn rewards on platforms that support wstETH.
  • Participate in DAOs: Use wstETH to participate in Decentralized Autonomous Organizations (DAOs) that make collective decisions on blockchain-based projects.
  • NFT Marketplaces and Gaming: Utilize wstETH in blockchain gaming platforms and NFT marketplaces.

wstETH on Multiple Blockchains

Lido Finance’s wrapped staked Ethereum has been integrated with multiple blockchains and can be transferred over in a way. This is done by a burning and minting process where wstETH is burned on the originating chain and an equivalent amount is minted on the destination chain. This eliminates the need for the liquidity pools typically essential for bridging assets and is done by Lido.

How to Wrap Your ETH to wstETH?

Wrapping your ETH or stETH into wstETH is a straightforward process:

  1. Visit the Lido staking interface at stake.lido.fi/wrap.
  2. Connect your wallet to the platform.
  3. Specify the amount of ETH or stETH you wish to wrap.
  4. Click on ‘Unlock tokens & wrap’ to initiate the process.
  5. Approve the transaction from your wallet to complete the wrapping process.

 

Do Staking Rewards Continue with wstETH?

Yes, when you wrap your stETH into wstETH, you continue to earn staking rewards at the same rate as you would with unwrapped stETH. The rewards are not visible daily, but are reflected once you unwrap your wstETH back to stETH, showing an increased stETH balance.

How to Unwrap wstETH Back to stETH?

Step 1: Access the Lido Staking Interface

  • Navigate to the Lido website at stake.lido.fi/wrap.
  • This page is where you originally wrapped your stETH into wstETH.

Step 2: Connect Your Wallet

  • Connect your Ethereum wallet (such as MetaMask) that contains your wstETH.
  • Ensure your wallet is active and selected on the Ethereum network.

Step 3: Navigate to the Unwrap Section

  • Locate the “Unwrap” option within the Lido staking widget on the interface.
  • This section is specifically designed for converting wstETH back to stETH.

Step 4: Enter the Amount to Unwrap

  • Input the amount of wstETH you wish to convert back to stETH.
  • Make sure the amount entered does not exceed the balance of wstETH available in your wallet.

Step 5: Review the Transaction Details

  • Before confirming the transaction, review all the details including:
    • The amount of wstETH you are converting.
    • Any applicable fees that will be charged for the transaction.
  • It’s important to understand all elements of the transaction to avoid surprises.

Step 6: Confirm the Transaction

  • Once you’ve verified the details, confirm the transaction in your wallet.
  • This action will initiate the contract to burn the wstETH and mint an equivalent amount of stETH based on the current exchange rate.

Step 7: Transaction Confirmation and Updates

  • Wait for the transaction to be confirmed on the blockchain.
  • Once confirmed, your wallet will automatically update to reflect the new stETH balance.
  • This updated balance includes any staking rewards accrued while your capital was in wstETH form.

 

How to Redeem wstETH for ETH?

Step 1: Unwrap wstETH to stETH

  1. Visit the Lido Wrapping Interface:
  2. Connect Your Wallet:
    • Use a compatible wallet such as MetaMask to connect to the site.
  3. Unwrap wstETH:
    • Choose the amount of wstETH you want to convert.
    • Click the “Unwrap” button.
    • Confirm the transaction in your wallet, converting wstETH back into stETH.

Step 2: Convert stETH to ETH

  1. Using a Decentralized Exchange (DEX):
    • Connect to a DEX like Uniswap or Curve.
    • Select stETH as the token you want to swap.
    • Choose ETH as the token you want to receive.
    • Enter the Amount you wish to convert.
    • Confirm the Swap in your wallet.
  2. Using a Centralized Exchange:
    • Log in to an Exchange like Bybit that supports stETH to ETH redemption.
    • Follow the Exchange’s Process for converting stETH to ETH, typically at a 1:1 ratio.
    • Note: This method might involve some processing time, often several days.

Step 3: Direct Withdrawal Method (Alternative)

  • If you prefer not to manually unwrap and swap:
    1. Request Withdrawals Directly:
      • Use the “Withdrawal Request” or “Claim” tabs on relevant platforms.
      • The platform handles conversion from wstETH to stETH under the hood.
    2. Note the Timeframe:
      • Withdrawals typically take between 1 to 5 business days to process.

Final Steps:

  • Monitor Your Wallet:
    • Check your wallet to ensure the ETH balance is updated post-transaction or withdrawal.
  • Manage Your Investments:
    • Consider the options and choose the method that best fits your needs, balancing convenience, speed, and potential fees.

Where to buy and sell Wrapped stETH (wstETH)?

What do we think about Wrapped stETH (wstETH)?

The key advantage of wstETH is its ability to remain stable, in a way that rewards are calculated in the price instead of the amount of tokens as it is relative to stETH. It is wrapped to be used in DeFi applications. Another way to keep the original value is to rewrap it in a way.

A clever automated integration of rewards into the token’s value simplifies the staking process even more.

What you get are a lot of stepping stones away from the original ETH, which means you are prone to more risk, if something happens with the code or protocol that is responsible for wrapping your staked derivatives from your initial ETH investment.

However, it has worked so far, as wstETH is in the top 50 in respect to market cap. This means it is widely accepted and has stood the test of time. As many people stake their ETH, they also want to remain liquid.

Wrapped stETH (wstETH) conclusion

So there you have it – wstETH is basically stETH’s cooler, more DeFi-friendly relative. Instead of dealing with the daily rebasing where the token count keeps changing, wstETH keeps it simple with a fixed balance while your rewards just make each token worth more.

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