Shapella Upgrade Powers Liquid Staking Derivatives: Unlocking New DeFi Opportunities

• Shapella upgrade of Ethereum has enabled users to unstake their ETH and increased liquid staking protocols.
• Liquid Staking Derivatives (LSD) have replaced ETH as the prime collateral in several DeFi protocols.
• The most popular LSD is Lido Staked Ether (stETH), which has become the largest collateral asset on Aave lending protocol.

Shapella Upgrade of Ethereum

Ethereum recently underwent two critical upgrades – The Merge and Shapella – which have had a major impact on its economic development. As a result, users have shown significant interest in Ethereum [ETH] staking due to improved confidence over withdrawals. May recorded the highest monthly net inflow of ETH, as per blockchain research firm Messari.

Growth of Liquid Staking Protocols

The Shapella upgrade has also led to the growth of liquid staking derivatives/tokens (LSTs). Liquid staking protocols like Lido Finance [LDO] have outperformed other options like centralized exchanges (CEX) and staking pools, causing CEXs’ contribution to ETH staking to decline from 27% to 20%.

Unlocking New Opportunities

These developments have unlocked new opportunities for LSDs: they allow users to directly participate in staking while also maintaining the ability to use them elsewhere in decentralized finance (DeFi) for higher yield opportunities. The most popular LSD in use is Lido Staked Ether [stETH].

Replacing ETH Collateral

Messari highlighted that LSDs have replaced ETH as the prime collateral in several DeFi protocols, including becoming the largest collateral asset on leading protocol Aave [AAVE].


The Shapella upgrade of Ethereum has been extremely beneficial for users, resulting in improved confidence over withdrawals and unlocking new opportunities for LSDs. This has allowed these derivative tokens to replace ETH as the prime collateral asset on leading DeFi protocol Aave [AAVE].