With Ethereum’s upcoming Shanghai upgrade, Lido DAO, SWISE, RPL prices soared. Still, the data shows that a large investor base is skeptical of these altcoin projects.
Stake Ethereum products rally ahead of Shanghai upgrade
According to data provided by CoinGecko, the Lido DAO management token LDO has gained 19% in the past seven days. Its price reached a one-and-a-half-month high of $1.30 on the day. Liquid staking protocol StakeWise (SWISE) has increased by over 70% in one week, while Rocket Pool’s RPL has increased by almost 10%.
The rally follows the Ethereum developers’ announcement on December 8 that the software update for the network’s next hard fork will take place in March. The upgrade, known as Shanghai, will include code allowing withdrawals of ETH staked on the Beacon Chain since December 2020, eventually giving participants a timeline to get their ether back. Analyst CroissantEth explains the catalysts for the rise:
Recently, liquid staking derivatives have experienced a nice uptrend. This was thanks to the Shanghai update, which is expected in a few months and will allow the withdrawal of staked ETH. As withdrawals are enabled, many believe that more users will stake their ETH.
Leading altcoin has the lowest staking rate
At the time of writing, Ethereum staked via liquid staking protocols accounted for more than 40% of the total ETH deposits, which exceeded 15.7 million, according to data from Dune Analytics. This amount explains the positive price action of liquid staking tokens before the Shanghai raise.
Also, according to Messari, Ethereum only had a 14% staking rate. This is the lowest rate among tier 1 projects. Therefore, there is plenty of room for growth in the Ethereum staking rate and adoption of liquid staking protocols.
Activity in liquid staking protocols has increased over the past few weeks, as David Alexander of Binance Labs, the venture capital arm of crypto exchange Binance, highlights:
Lido, with a total value pegged at $5.9 billion, surpassed MakerDAO and AAVE to become the world’s largest DeFi protocol, according to DefiLlama data. As you follow on Kriptokoin.com, Aave has been moving in a sharply decreasing price range with the gradually decreasing trading volume since November.
Which altcoin project are traders shorting?
The data shows that some investors are skeptical of long-term gains in LDO. This is evident from negative funding rates or costs in perpetual futures contracts linked to LDO.
A negative funding rate indicates that leverage is skewed in the bearish direction. This creates the short squeeze event, an exaggerated price rally triggered by bears shifting their positions. According to crypto hedge fund Ouroboros Capital, “Short positions (on LDO) have piled up after high performance on hopes that early investors sold. However, while these sellers are only closing their long positions, the shorts are also likely to be squeezed.”