The ether (ETH) Liquid Staking Derivatives (LSD) market is poised for explosive growth, potentially adding $24 billion in total value locked over the next two years, according to a new report from HashKey Capital.
Ethereum’s LSD market reached over $22 billion in total value locked (TVL) this year, and the total market capitalization of all LSD projects hit $18 billion, the report says. Staking is a way for crypto holders to put their digital assets to work and earn a passive income without needing to sell them.
The amount of staked ether could reach between 31%-45% of the total ether supply by the end of Q2 2025, which in turn would drive up the value of the LSD market.
“As protocol revenue for LSD protocols directly correlates with ETH prices, liquid staking protocols can be seen as a levered bet on ETH as they gain a stronger market share over staked ETH,” the authors write, arguing that the liquid staking market share will take a sizable amount from solo and CEX staking.
HashKey Capital predicts a possible reduction in staking yields due to an increase in investor participation, but also says that the effects of this can be mitigated because of the composability of decentralized finance (DeFi) protocols. DeFi refers to lending, borrowing on a blockchain without the help of any intermediaries.
For instance, staked assets could also be used in yield farming, lending, or other income-generating DeFi strategies, creating a layered structure of yield generation that could potentially counterbalance the anticipated reduction in staking yields.
“In the future, any rational actor with have 100% of his or her ETH staked in LSDs,” HashKey’s Henrique Centieiro, one of its senior researchers that co-authored the report, said.
