Ethereum (ETH) and DeFi are undergoing a major shift as the transition to Eth2 and Proof-of-Stake (POS) consensus mechanisms help boost the value proposition for the network, which previously struggled with issues of scale and high transaction costs would have .

With this transformation comes the emergence of liquidity staking, making DeFi more useful and allowing investors to do more with their assets rather than simply lock them away. Liquid staking can also help investors build more capital-efficient portfolios.

The protocol that has benefited from the move to liquid staking is Lido (LDO), a platform that allows investors to earn staking rewards for their tokens while allowing the resulting LP tokens to work in many DeFi protocols punt

Data from TradingView shows that the LDO price rose 28% from $1.27 on February 21 to an intraday high of $1.64 on February 22.

LDO/USDT 4 hour chart | Source: TradingView

The three reasons behind the price trend reversal in LDO are the introduction of Kusama Staking Support (KSM), the increase in the protocol’s Total Value Locked (TVL), and the growing popularity of Staking.Liquidity in the cryptocurrency market.

LIDO supports staking from KSM

The latest development coming from the Lido platform is the addition of support for Kusama liquidity staking.

“Lido for Kusama on Moonriver is available. Stake your KSM with Lido to earn daily rewards and use your staked assets in the Kusama DeFi space.”

This integration is made possible through a development partnership with Moonriver Network, a protocol focused on compatibility between Kusama and the Ethereum network.

KSM holders who choose to take a stake in Lido can continuously earn staking rewards with an APR of 18% while leveraging Kusama (stKSM) deployed across various DeFi platforms for additional profits.

Other benefits include staking with no link delay and clearance period, and the ability to maximize staking rewards through dynamic Lido reallocation to the most profitable KSM validation nodes.

TVL increased sharply

The second factor to consider is the TVL on the platform. It currently reaches $12.09 billion, according to data from Defi Llama.

Total locked on Lido | Source: Defi Llama

After peaking at $13.26 billion on December 26, 2021, TVL on Lido fell to $7.74 billion on January 31, driven by a market-wide sell-off that significantly impacted the value of the tokens held in the protocol reduced.

Since then, TVL has rallied to $12.09 billion, although the total crypto market cap has remained flat. The addition of new assets like KSM could be a reason for TVL’s rise.

Lido also supports Ether, Terra (LUNA) and Solana (SOL).

Liquidity staking makes interacting with DeFi more practical

Another factor giving LDO momentum is the growing popularity of using liquidity.

Liquid staking search volume history | Source: Google Trends

Before the addition of liquidity staking, holders had to choose between earning rewards by individually staking them on the network and retiring them, or bringing them live in the DeFi protocol through paired liquidity pools.

With liquidity staking, investors can get the best of both worlds by staking tokens to secure the network while also being able to make profits in DeFi by pledging staking assets as assets.

For example, users using Solana (SOL) on Lido can also lend their stSOL on Apricot Finance with an additional 32% APR. There was also a proposed vote on AAVE that suggested adding stETH as collateral on the AAVE V2 marketplace.

If Lido continues to add multi-chain assets for staking and liquidity staking, it could support LDO even more.

As the crypto ecosystem continues to drive the transition to POS, liquidity staking is likely to become commonplace, which could also lead to future returns for LDOs.

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