The cryptocurrency industry is rarely inactive. Governance tokens of liquid staking platforms, which let users preserve the liquidity of their tokens even while they are locked in a blockchain network, are soaring as bitcoin (BTC) and ether (ETH) stay stable.
Lido DAO, SWISE, RPL Prices Surged
According to CoinGecko, the price of Lido, the governance token of the Lido DAO, has increased by 19% over the previous week, reaching a high of $1.30 early on Tuesday. Over the past week, SWISE, used in the liquid staking protocol StakeWise, has surged quickly by over 70%, while RPL, used in the Rocket Pool mining platform, has risen by almost 10%.
The Ethereum development team announced on December 8 that the network would undergo its second hard fork in March, prompting the current uprising. The Shanghai update will feature codes for withdrawal of Ether staked in the Beacon Chain, offering users a window time to retrieve their Ether.
Staking is the practice of keeping bitcoin in a wallet to help the blockchain function and earn incentives. Staked assets may be held for a considerable period. Liquid staking systems do away with the opportunity cost by generating a derivative token for the claim on the locked tokens and the rewards gained. These derived tokens can be put to work elsewhere to bring in a higher return.
According to Dune Analytics, more than 40% of 15.7 million ether deposits were staked using liquid staking methods. That’s why the price of governance tokens for liquid staking has been rising in anticipation of the Shanghai upgrade.
Shorts stacked in LDO
However, some investors doubt LDO’s ability to sustain its recent advances. The evidence is visible given the highly negative financing rates or expenses associated with maintaining either a bullish long or a bearish short position in the LDO-linked perpetual futures contracts.
The leverage is pushed toward the bearish side when the funding rate is negative. This sets the stage for a short squeeze, an extreme price surge caused by bears squaring their holdings.
According to on-chain evidence from Ouroboros Capital, shorts have heaped on (in LDO) after the outperformance in the hopes that early investors will sell. While these on-chain sellers were only closing their perp shorts/spot longs, it is also possible that shorts will be squeezed, resulting in another leg upwards.
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