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