Lido: TVL dips despite stETH demand, what will the protocol do next

In a tweet on March 28, Lido Finance [LDO] reported a 2% decline in its Total Value Locked (TVL) over the previous week. A decline in the TVL could portend a bleak future despite the great demand for Lido’s stETH in the month prior.

The declining activity on the network may be one factor contributing to Lido’s reduction in TVL. The number of daily active users on the protocol has decreased by 29.1% recently, according to data from Token Terminal.

This decrease in users can be due to Lido’s falling APR. Users have less incentive to contribute liquidity or stake their assets through the system when the APR declines.

Nonetheless, Lido’s wstETH performed well in L2 protocols and loans. WstETH was more popular on protocols like MakerDAO and Aave, where demand increased by 25.96% and 10.6%, respectively.

For the L2 solutions, Optimism saw a 4.4% increase in wstETH deposits while Polygon [MATIC] had a 3.67% increase. Moreover, LDO did not have a good week either, as its prices fell sharply over the previous few days. The decrease in whale interest, as shown by Santiment’s statistics, may be one factor contributing to the drop in LDO’s price.

Moreover, LDO’s network growth declined, suggesting that new addresses were uninterested in purchasing the token at the advertised price.

The token’s MVRV ratio turned negative, though, thus it seemed as though LDO might not fall any lower. A negative MVRV ratio suggested that most LDO token owners were losing money as of press time. As a result, at the time of publication, they were significantly more inclined to hold off on liquidating their positions until LDO’s prices rose.

Although LDO prices may rise again in the future, the recent price declines may have a significant impact on the procedure. This is due to the fact that the LDO token made up 82.9% of Lido’s treasury. If the costs kept dropping, the protocol might not have enough funds to upgrade its network.