Lido's wrapped stETH (wstETH) is a specialized version of stETH created by depositing stETH into a wrapper smart contract. This process converts rebasing stETH into a fixed-balance ERC-20 token optimized for DeFi applications.
Key Features of wstETH
DeFi Compatibility:
- Enables seamless integration with platforms like Uniswap and MakerDAO
- Solves compatibility issues with protocols requiring static token balances
Reward Mechanism:
- Uses an implicit share system to accumulate staking rewards
- Eliminates the need to manually claim daily rewards
Conversion Flexibility:
- Can be wrapped/unwrapped 1:1 with stETH through Lido's official wrapper
Why Use wstETH Instead of stETH?
While stETH works well with rebase-aware platforms like Curve and Yearn, wstETH offers advantages for:
- DEX Liquidity Provision: Prevents loss of staking rewards when providing liquidity on Uniswap, SushiSwap, or 1inch
- Protocols Requiring Static Balances: Required by many lending platforms and stablecoin protocols
- Simplified Accounting: Fixed token balance makes portfolio tracking easier
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Practical Example
Consider an Ethereum holder who:
- Stakes ETH via Lido to receive stETH
- Wraps stETH into wstETH
- Supplies wstETH as collateral on MakerDAO
- Continues earning staking rewards automatically through the wrapper contract
FAQs
Q: Is there any fee for wrapping stETH to wstETH?
A: No, the conversion is always 1:1 with no additional fees.
Q: How are rewards calculated with wstETH?
A: Rewards accrue internally through increasing redemption rates - your wstETH becomes worth more stETH over time.
Q: Can I unwrap wstETH back to stETH anytime?
A: Yes, the process is fully reversible through Lido's wrapper contract.
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Key Takeaways
- wstETH solves DeFi integration challenges for stETH holders
- Maintains exposure to staking rewards while enabling new use cases
- Essential tool for sophisticated Ethereum stakers