Wrapped stETH (WSTETH)

Liquidity and Trading

Wrapped stETH provides a stable, non-rebasing token that can be easily traded on decentralized exchanges like Uniswap. This makes it easier to use staked ETH in trading pairs and liquidity pools without balance fluctuations caused by staking rewards.

DeFi Integration

Wrapped stETH is designed to work smoothly with DeFi protocols that require tokens with a constant balance. It can be used in lending platforms, decentralized exchanges (DEXes), liquidity pools, yield aggregators, and yield optimizers, enabling users to earn yields and participate in various DeFi activities.

Staking Rewards

While wrapped, the token balance remains constant, but the value of wrapped stETH increases relative to stETH to reflect staking rewards. Users continue to earn ETH staking rewards indirectly through the increasing exchange rate between wrapped stETH and stETH.

Cross-Chain and Layer 2 Compatibility

Wrapped stETH facilitates easier integration and movement across different blockchain ecosystems, including Layer 2 solutions and other chains, enhancing its utility and accessibility in the broader crypto ecosystem.

Simplified Management

Wrapping stETH into wrapped stETH allows users to hold a fixed token balance, which simplifies accounting and tax considerations compared to the rebasing nature of stETH. It also enables seamless wrapping and unwrapping through smart contracts without losing staking rewards.

Advantages of Wrapped stETH

• Wrapped stETH provides a stable and constant balance version of stETH, making it compatible with many DeFi protocols that do not support rebasing tokens.
• It allows users to participate in DeFi activities such as lending, liquidity pools, and trading on decentralized exchanges without losing staking rewards.
• Wrapping stETH can offer tax benefits in some regions by converting income tax on rebases into capital gains tax on wrapping/unwrapping events.
• The token balance of wstETH remains fixed, simplifying integration with protocols like Uniswap and MakerDAO.
• Staking rewards accrue automatically to wstETH holders without needing to claim them separately.
• It enables easier cross-chain and Layer 2 interactions due to its stable balance design.
• Users can unwrap wstETH back to stETH at any time, receiving the accumulated staking rewards.

Disadvantages of Wrapped stETH

• When stETH is wrapped, it is locked in a smart contract, which introduces smart contract risk.
• The conversion rate between stETH and wstETH changes over time, which may cause complexity in understanding the exact value held.
• If something catastrophic happens to the stETH supply, there could be a risk of depeg between stETH and wstETH.
• Some users may find the initial wrapping process and understanding the share system more complex than holding stETH directly.
• Wrapped stETH may have slightly different liquidity and trading volumes compared to stETH on some exchanges.

In summary, Wrapped stETH offers better DeFi compatibility and potential tax advantages by providing a non-rebasing, stable balance token, while introducing smart contract risks and some complexity in token value tracking.

Founders

Wrapped stETH was founded by Vasiliy Shapovalov.

Background

Wrapped stETH is a token on the Ethereum blockchain that represents a stable, non-rebasing version of staked Ether (stETH). It was created to make stETH easier to use in decentralized finance (DeFi) applications that do not support tokens with changing balances.

Purpose

Wrapped stETH allows users to keep a fixed token balance while still earning staking rewards, making it compatible with many DeFi protocols and enabling use across multiple blockchain ecosystems.

Investors in Wrapped stETH

Wrapped stETH is primarily backed by users who stake their ETH through the Lido liquid staking protocol. These investors include:

• Individual ETH stakers: People who stake their Ethereum (ETH) with Lido receive stETH tokens, which they can wrap into Wrapped stETH to use in DeFi.
• DeFi users and traders: Investors and traders who want to participate in decentralized finance activities while maintaining exposure to staking rewards.
• Liquidity providers: Those who provide liquidity on decentralized exchanges like Uniswap (v3 and v4), Balancer, and others, trading Wrapped stETH pairs.
• Automated trading bot users: Investors using platforms like Cryptohopper to trade Wrapped stETH automatically.
• DeFi protocols and platforms: Some DeFi projects integrate Wrapped stETH to offer staking, lending, or yield farming services.

The Wrapped stETH token is created and managed by the Lido protocol, which supports staking on Ethereum and distributes staking rewards to token holders.

Halal Status of Wrapped stETH

Wrapped stETH is a token representing staked Ether (ETH) on the Lido platform, designed for use in decentralized finance (DeFi). It provides liquidity and staking rewards through a wrapped, non-rebasing token format.

Reasoning

• Wrapped stETH represents ownership of staked ETH and the rewards earned from staking.
• It does not inherently involve interest (riba) or exploitative practices.
• Islamic finance scholars have differing views on cryptocurrencies and staking, but some consider staking and tokens like Wrapped stETH halal if they do not involve interest or unethical activities.
• The token is used in legitimate DeFi protocols and reflects real assets (staked ETH).

Answer: Yes, Wrapped stETH is generally considered halal because it represents a legitimate asset and staking rewards without involving interest or unethical practices.