stETH is a tradeable receipt of ETH locked through Lido to secure the Ethereum network. stETH is a rebase token that accrues staking yield with an elastic supply. It is not yet redeemable for ETH until a later network upgrade.
stETH is a mid-cap, fully collateralized asset. This asset is exposed to the underlying risks of Lido, a protocol rated as Good. stETH is backed 1:1 by ETH staked on the Ethereum blockchain. The asset accrues staking rewards automatically via daily rebases. stETH can trade at a discount to 1 ETH as it is less liquid, has less utility (cannot be used to pay for gas fees), and has more technical risk (Lido smart contract bugs). The asset has an uncapped supply but has inflation control or burn mechanisms in place.
stETH is highly correlated to the overall market. stETH can trade at a discount to 1 ETH as it is less liquid, has less utility (cannot be used to pay for gas fees), and has more technical risk (delay to ETH merge, Lido smart contract bugs).
Lido is a liquid staking platform for Proof-of-Stake blockchain assets that allows users to stake their asset without needing to lock assets or maintain the required infrastructure. This enables users to continue participating in DeFi activities related to lending and market making. Lido helps address some of the core problems associated with initial ETH staking around illiquidity, immovability and accessibility. See our risk assessment of Lido for more details.
Users receive stETH tokens on a 1:1 basis when depositing their ETH into the Lido staking contract. The ETH is split between node operators and then sent to their respective validators. The stETH token balance is updated on a daily basis (rebase token) to reflect the accrued staking rewards, minus any penalties. There are no lock-up or minimum deposit requirements when staking through Lido.
ETH deposited into the Lido staking contract are subsequently locked into the Ethereum PoS deposit contract. This contract is collectively managed by a set of industry leaders chosen by the Lido DAO. The staked ETH is now withdrawable following the Shanghai upgrade and the launch of Lido V2. Users must go through an exit queue in order to withdraw their underlying ETH. Users can also always exchange their stETH for ETH through exchanges that offer liquidity like Curve’s stETH/ETH pool.