In a watershed moment for Ethereum’s decentralized finance ecosystem, Lido Finance displaced MakerDAO to become the largest DeFi protocol by total value locked (TVL) in January 2023. The shift marked the end of MakerDAO’s eight-month reign at the top and underscored the explosive growth of liquid staking derivatives (LSDs) ahead of the highly anticipated Ethereum Shanghai upgrade.
TL;DR
- Lido Finance overtook MakerDAO as the #1 DeFi protocol by TVL with approximately $7.5 billion in locked assets
- Lido’s native token LDO surged 118% in 30 days, making it one of January’s top-performing DeFi assets
- The Ethereum Shanghai upgrade, expected in March 2023, will enable validators to withdraw staked ETH for the first time
- MakerDAO slid to the #2 spot with roughly $6.9 billion in TVL
- Aave and Curve Finance tied for third place with approximately $4.4 billion each
The Rise of Liquid Staking
For months following the Ethereum network’s transition to proof-of-stake in September 2022, staking ETH came with a significant catch: there was no way to withdraw staked tokens. The Shanghai upgrade, scheduled for March 2023, promised to change that by enabling validators to finally unlock their staked ETH. This prospect fundamentally altered the risk-reward calculus for Ethereum staking.
Liquid staking providers like Lido Finance were the primary beneficiaries of this narrative shift. These protocols allow individuals to stake ETH without meeting the 32 ETH minimum required to run a validator node, while simultaneously issuing liquid staking tokens (like stETH) that can be used across DeFi protocols. With the Shanghai upgrade reducing the liquidity risk of staking, demand for these services exploded.
Lido Finance’s TVL climbed to approximately $7.5 billion, dethroning MakerDAO which had held the top spot since June 2022 with roughly $6.9 billion in locked value. The shift represented more than just a leaderboard reshuffle — it signaled a fundamental change in what DeFi users valued most.
LDO’s Meteoric Rally
The excitement around liquid staking sent Lido’s governance token, LDO, on a remarkable rally. The token surged 118% over a 30-day period, making it one of the best-performing DeFi assets in January 2023. The rally was fueled by a combination of growing TVL, anticipation of the Shanghai upgrade, and broader market recovery that saw Bitcoin reclaim $22,000 and Ethereum return to $1,600.
DeFi tokens broadly outperformed the wider crypto market in January. DeFi dominance — a measure of DeFi token market caps relative to the global crypto market cap — increased to 1.2%, indicating that investors were treating DeFi tokens as a leveraged bet on their underlying Layer 1 blockchains. The higher volatility in DeFi tokens compared to base layer assets like ETH and BTC attracted traders seeking amplified returns during the recovery.
The DeFi Protocol Rankings Reshuffle
January 2023 saw a significant reshuffling of the DeFi protocol hierarchy. Behind Lido and MakerDAO, Aave and Curve Finance were locked in a statistical tie for third place, each commanding approximately $4.4 billion in TVL. Convex Finance rounded out the top five with about $3.7 billion, overtaking Uniswap in the rankings.
Aave in particular was gaining momentum in the lending space. Data on daily borrowing showed Aave consistently capturing more market share than competitors MakerDAO and Compound. This growth was further catalyzed by the much-anticipated deployment of Aave v3 on Ethereum, which took place on January 27, 2023. Aave v3 introduced several new features designed to reduce gas costs and increase capital efficiency, capabilities that had previously been available only on select Layer 2 networks and Avalanche.
Ethereum’s Evolving Staking Landscape
The rise of liquid staking represented a broader evolution in Ethereum’s economic model. Since the Beacon Chain launch in December 2020, over 16 million ETH had been staked by validators securing the network. However, the inability to withdraw those funds had created a massive pool of illiquid capital. The Shanghai upgrade’s promise of withdrawal functionality was set to unlock this capital, and liquid staking protocols positioned themselves as the primary on-ramp for users looking to earn staking rewards without sacrificing liquidity.
The ETH price recovery to approximately $1,660 by January 20 — regaining levels last seen before the FTX collapse in November 2022 — further amplified the attractiveness of staking. Higher ETH prices meant larger staking rewards in dollar terms, creating a positive feedback loop that drove additional deposits into liquid staking protocols.
Cross-Chain Innovation Adds Fuel
The DeFi recovery was not limited to Ethereum alone. Circle, the issuer of the USDC stablecoin, announced its Cross-Chain Transfer Protocol (CCTP), a permissionless protocol enabling native USDC transfers across blockchains. This development promised to improve capital efficiency across the entire DeFi ecosystem by eliminating the need for wrapped or bridged versions of the stablecoin.
USDC had demonstrated strong fundamentals despite broader stablecoin market contraction, with on-chain volume on Ethereum growing 15% year-over-year. The CCTP announcement added another layer of innovation to an already dynamic month for DeFi.
Why This Matters
Lido’s ascent to the top of the DeFi TVL rankings was more than a symbolic milestone. It represented a fundamental shift in where value was flowing within the Ethereum ecosystem — from traditional DeFi primitives like lending and stablecoins toward staking infrastructure. The liquid staking sector’s growth, fueled by Shanghai upgrade anticipation, signaled that Ethereum’s proof-of-stake transition was entering a new phase of maturity. With Aave v3 launching on Ethereum mainnet, DEX volumes surging, and new cross-chain infrastructure on the horizon, January 2023 laid the groundwork for what many hoped would be a sustained DeFi renaissance.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always do your own research before making investment decisions.
LDO up 118% in 30 days on pure shanghai upgrade speculation. classic buy the rumor behavior
liquid staking derivatives were obviously going to explode once withdrawals were confirmed. the real question is how concentrated lido gets
its already like 30% of all staked ETH on lido. if it goes much higher we have a whole new centralization problem on our hands
it crossed 30% back then and now its even higher. the ethereum foundation keeps talking about decentralization while one protocol controls a massive chunk of the consensus layer
30% is already too high tbh. the whole point of pos was decentralization and we ended up with a single entity controlling a third of staked eth
LDO pumping 118% on pure speculation was the signal to take profits. the actual shanghai upgrade could have been a sell the news event
shanghai ended up being a buy event, not sell the news. LDO kept pumping for weeks after. the speculation crowd got that one wrong