LSD represents a promising new narrative that has emerged in the decentralized finance (DeFi) space. It refers to a series of protocols based on Liquid Stake Derivatives (LSD), covering various aspects of the DeFi ecosystem, including decentralized exchanges (DEXs) and lending platforms, as well as more complex projects leveraging the unique properties of LSD.
1. Current Status of LSD
The Liquid Stake projects have laid the foundation for the LSD track in DeFi. These projects serve as the first layer upon which more complex and innovative products are built. In terms of hierarchy, SSV Network, Obol Labs, and other DVT (Decentralized Validation Technology) service providers can be considered as L0. DVT technology enables validators to perform signature responsibilities more stably and securely. SSV Network, being the first project to issue tokens at this level, has gained an advantage in brand recognition.
Lido, Ankr, Coinbase, and other LST (Liquid Staking Token) issuers can be regarded as L1. L1 mainly operates on a commission-based model, with users benefiting primarily from the POS (Proof of Stake) income of ETH. After the Shanghai upgrade, the number of projects at the L1 level exceeded the initial MAP predictions, but it was found that over 20% are still in the testing phase. According to Defilama data, Lido holds about 74.45% of the liquidity stake. Lido and Rocket Pool together account for around 82.5%, while LST issued by centralized exchanges like Coinbase represents over 12% of the staked liquidity, leaving limited space for other decentralized staking projects.
At the L3 level, which includes fixed-income products, stablecoins, and yield aggregators, the majority are based on LST. These stablecoins list LST as collateral and often support other stablecoins and assets like ETH/WETH. There are relatively fewer lending and leverage projects at this level, resulting in a temporary scarcity of yield aggregation and structured strategy projects. The emergence and development of fixed-income products from projects like Yearn's yield pools, Shield's structured products utilizing options, and Pendle will further drive the appearance of yield aggregation and structured strategy projects. Projects that subsidize staking rewards through their own tokens experienced rapid declines in both token value and Total Value Locked (TVL) after the Shanghai upgrade.
2. Scale of LSD
As the Ethereum network transitions from PoW (Proof of Work) to PoS (Proof of Stake), an increasing number of users participate in ETH staking, with over 23 million ETH currently staked. This has fueled the rapid growth of LSD, with a total market value of over $16 billion. Lido, as the primary provider, holds a market share of 31.6%.
In addition, BNB (Binance Coin) staking within the BNB ecosystem is also active, with a total stake value of approximately $150 million. Similar to ETH liquidity staking, BNB stakers receive liquidity staked BNB that can be used in other areas of DeFi, generating further returns.
3. Future Development of LSD
From the multi-chain plans of LSD projects such as Lido, Stader, and Bifrost, it is evident that multi-chain deployment is an inevitable trend for LSD. From the examples of these projects, most LSD projects are likely to start on a specific chain or ecosystem before expanding to other public chains.
Currently, LSD is becoming one of the dominant forces in the DeFi industry. In the future, there may be dedicated decentralized exchanges (DEX) or aggregators specifically catering to LSD. The concept of an LSD basket allows for the consolidation of various liquidity staking solutions into a single basket, thereby diversifying risks and making LSD investments more convenient. Many protocols, such as AcidDAO and parallaxfin, offer opportunities to invest in various baskets derived from original LSD and implement different strategies. Pendle.fi provides a unique futures purchasing platform that enables users to buy ETH at a discounted price and receive it later, allowing them to invest in designated LST tokens. Some protocols, like asymetrix_eth, explore asymmetric yield distribution similar to a lottery system, where winners share all staking rewards for a certain period.
4. Opportunities Presented by LSD
The integration of DeFi and the LSD industry is an important trend, and LSDfi is the result of this evolution. As this trend develops, LSD is becoming one of the main forces in DeFi. Currently, LSDfi has evolved into an independent field within DeFi and is making positive progress. It encompasses not only classic DeFi protocols but also more complex ones such as Baskets, stablecoins, and yield strategies.
Furthermore, with the Ethereum network transitioning to PoS, staking ETH will become a popular choice for an increasing number of users, and LSDFi can provide stakers with more liquidity and earning opportunities. Currently, the locked funds in LSD protocols account for only 2.4% of the total LSD market value, indicating significant growth potential for LSDFi.
5. Conclusion
LSD has become a standard in any Proof of Stake (PoS) ecosystem and has emerged as one of the major trends in DeFi. LSD provides a sustainable, low-risk source of passive income and contributes to the maintenance of blockchain. LSDfi is a logical extension of LSD, creating a complete economy capable of generating substantial revenue while simplifying interactions with LSD projects.
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