Ether price charts reflect weakness, but inflow to LSDFi could prevent an ETH sell-off

Ether has been on a downtrend, with the $2,000 level forming a key resistance level in recent months.

Bitcoin (BTC) posted an 11.94% gain in June to top $30,000 after BlackRock filed an exchange-traded fund application with the SEC, but Ethereum (ETH) remained around 3.16% .

During the first week of July, buyers attempted to push prices above a key resistance level around $1,900. However, the failure of the breakout left the price facing further correction.

Activity on the Ethereum network has also declined, as evidenced by a year-low level of total transaction fees.price leadership Non-fungible token (NFT) collections on Ethereum have dropped significantlywhile decentralized finance (DeFi) activity has stalled due to low yields.

However, the downside may be limited as demand for liquid collateralized derivatives (LSDs) such as Lido’s stETH continues to grow faster than investors can sell.

LSD activity is on the rise

While the major use cases of NFT transactions and DeFi activity on Ethereum suffered a downturn in June, the LSD narrative continues to grow.

On-chain analytics company Glassnode wrote In its latest report, deposits to staking contracts are “higher or equal to exchange inflows since Shanghai went live,” suggesting more ETH is being staked than sold on exchanges.

The total amount of ETH deposited into the pledge contract is 19.7%, while the centralized exchange balance is about 12.8%. The LSD platform captures the majority of inflows, followed by independent validators and staking-as-a-service clients.

After the Shanghai upgrade in April, Ethereum pledged deposits increased significantly, redemptions were active, and confidence increased. Among the LSD platforms, Lido is leading, followed by Rocket Pool and Frax.

Glassnode’s report also suggests that the network “has yet to see a significant influx of new holders,” as the number of new addresses holding Lido stETH has been “more or less unchanged” so far this year.

Currently, 20% of the total ETH supply is staked by validators, compared to more than 40% for most other proof-of-stake blockchains such as Solana (SOL), Cosmos (ATOM) and Avalanche (AVAX), indicating that There is room to grow.

Since the annual DeFi rate of return of ETH on Aave and Yearn.finance is hovering around 1-3%, the annual rate of return of stablecoins is between 3-5%, and the LSD derivatives provide a basic interest rate of 4%. Use its liquidity in the application to earn additional income.

Glassnode’s report said LSD derivatives “have seen increased activity across different DeFi protocols, with Lido’s stETH being the most significant.”

In addition, LSD token holders have also shown a shift away from providing liquidity on DEXs such as Curve and Balancer to pursuing higher yields on lending protocols such as Compound and Aave. Analysts at Glassnode wrote: “This leveraged collateral position is expected to increase yields by 3x.”

The LSD space appears to be a current hotspot for DeFi players looking to maximize yield.

related: Rapid Growth of DeFi-Centric Ethereum Liquid Staking Derivatives Platform Gains Attention

Ethereum Price Analysis

Earlier this week, ETH broke out aggressively from a bullish ascending channel pattern targeting $3,000. However, the trend quickly reversed, with Bitcoin dropping to $30,000 after Fed rate hike expectations rose and sellers gained the upper hand.

Technically, the price can go one of two ways from here: find support at the bottom of the ascending triangle near $1,790 before breaking through the $1,900 resistance again, or continue falling to the long-term resistance and support at $1,700.

A break below $1,700 would give sellers an opportunity to target the 200-day weekly moving average around $1,575.

The ETH/BTC pair also shows that there is further downside for Ethereum, approaching the 200-day moving average at 0.0574 BTC and long-term resistance and support at 0.0538 BTC.

Ethereum’s aggressive breakout in early July failed, causing the price to fall further to around $1,700. However, the surge in the LSD narrative, with higher yields than the DeFi space, provides a buffer against any future downside, suggesting that the price may establish bullish support.