What happened
One of the more volatile cryptocurrencies on investors' watchlists this year has to be Lido DAO (LDO -7.40%). The LDO tokens ascribed to this liquid staking protocol for Ethereum (ETH -3.19%) have surged more than 140% on a year-to-date basis, driven in part by the highly anticipated upcoming Shanghai upgrade for the Ethereum network. This rally has also been helped by today's 15% 24-hour move as of 4 p.m. ET.
This move appears to be a recovery rally, following a decline of around 15% last week tied to concerns raised by Galaxy Digital around the upcoming proposal set to allow for withdrawals of Lido Staked Ether (STETH -3.07%) from the liquid staking protocol. These specific concerns relate to the potential for a mass-slash event, or other edge-case events that provide inherent risks tied to staking through an intermediary.
While these concerns are seemingly compelling based on last week's dip, the recovery seen in Lido this past week does suggest the market is brushing off these concerns as unlikely.
So what
The upcoming Shanghai upgrade, and a proposal tied to this fork, will allow staked Ether to be withdrawn. With so much riding on this upgrade, investors will be keeping a close eye on how Ether, LDO, and stETH perform, once withdrawals are fully open.
How this proposed withdrawal process will work appears to be rather complicated. Essentially, a proposal will allow for users to send withdrawal requests into a queue, which will then pull the appropriate Ether from a regularly calculated reserve pool, in the order the requests are received.
While this sounds simple, there are a number of risks tied to this proposal that are worth thinking about. In a worst-case scenario, things can turn ugly pretty quick. And while there's no indication these risks are imminent, they are worth digesting -- although the market appears to already have digested them.
Now what
Last year's massive Merge upgrade brought about a radical change for Ethereum's consensus mechanism, from proof-of-work to proof-of-stake. This year's Shanghai upgrade appears to be similarly massive, with implications for how staked Ether can be removed from the staking pools offered by Lido and others.
Risks do exist with the upcoming proposals set to be put in place. Accordingly, investors looking at either ETH, LDO, or stETH ought to be aware of these risks.
With that said, the price action thus far in 2023 has been heavily skewed to the bullish side of the ledger, judging by Lido's more than doubling in one month. For momentum investors, these are tokens to keep on the radar right now, to be sure.
