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This is why Lido (LDO) token staking growth could be bullish

Liquid staking has surged in popularity over the past year, due in part to the launch of the Ethereum beacon chain and the inability of ETH stakers to withdraw their tokens until the consensus layer is fully launched.

As a result, Lido (LDO) has established itself as a leader in liquid staking. Lido is one of the main staking protocols for several popular tokens and allows token holders to generate additional returns by using their staked assets to work in decentralized finance (DeFi).

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LDO/USDT 4 hour chart. Source: TradingView

Data from Cointelegraph Markets Pro and TradingView shows that the price of LDO trended higher throughout the month of March and then entered a consolidation phase in early April. Currently, the broader market is in a strong downtrend, but the growth of the staking sector and the upcoming Ethereum “merger” could still result in bullish results for LDO.

Expansion of liquid staking options

LDO price reversed the trend towards the end of February and this was partly due to the addition of Polygon (MATIC) liquid staking to the Lido protocol, developed in partnership with Shard Labs.

At the time of writing, MATIC has more than $14.5 million staked on Lido and is yielding an 8.7% return. The protocol currently allows staking of ERC-20 MATIC tokens and stakers receive stMATIC in return, which can be used in DeFi protocols on Ethereum and Polygon network.

The addition of new assets, as well as an increase in the amount of ether staked on Lido, took the total value set in the protocol to a record high of $20.83 billion on April 5, and currently, according to data from Defi, that figure is off Llama at $18.3 billion.

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Total value blocked on Lido Finance. Source: Defi Llama

New partnerships and integrations increase Lido’s market share

Institutional investments and integrations with other protocols also paint a positive picture for LDO. The project recently received a $70 million investment from Andreessen Horowitz’s a16z firm.

In addition to investing $70 million, a16z also announced that it would deploy some of its ether holdings on the platform to reduce some of the operational complexity for institutional investors.

Lido also benefited from several integrations in March and April, including the addition of staked ether (stETH) to AAVE’s loan pools. Staked Solana (stSOL) has also been integrated into the Solana ecosystem on multiple platforms including Raydium, Friction Finance and several protocols adding support for Staked Terra (stLUNA).

Related: The many layers of crypto staking in the DeFi ecosystem

Increased decentralization could attract investors

Another factor that could help improve the future prospects for LDO is the developers’ focus on improving the protocol’s decentralization.

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One step in this process is the introduction of Distributed Validator Technology (DVT), which groups validators into independent committees that collectively propose and confirm bans to reduce the risk of underperformance or misconduct by a single validator.

This helps to simplify and speed up the process of adding new Node Operators (NOs) as new operators can be paired with a group of majority trusted NOs to reduce potential risks.

A second improvement includes the ability to stake out based on a Node Operator Score derived from multiple metrics, and this helps incentivize operators to maintain optimal performance.

A final improvement is the creation of new mechanisms such as longer time locks and granting veto rights to a quorum of stETH holders to mitigate the risk of governance capture and prevent unplanned changes to Lido.

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