Source: Bankless; Compilation: BlockingBitpushNews Mary Liu
Liquid Staking Derivatives (LSD) is one of the hottest topics in 2023. These protocols accept deposited ETH, stake it to ensure network security, and distribute staking rewards to LSD holders (excluding some fees). This greatly simplifies the staking process for users and allows the use of LSD in other DeFi applications.
The market leader in this space is Lido, whose dominant position is largely due to its “early and ubiquitous” entry, allowing it to leverage its network effects to become the “safest” option for users entering the world of ETH staking.
So, how do other protocols compete?
- The five newcomers of LSD are coming on strong. Can Lido still hold onto his leading position?
- Aura Finance: Why choose to promote LST liquidity growth on Optimism?
- Three Transformations are Required for Ethereum Success, but New Problems Arise
While some purists may believe otherwise, market participants often choose the platform that best serves their interests. To compete for market share (or even undermine its monopoly position), newcomers must offer something better or different than Lido.
In our view, these advantages could be:
Easier to use
Higher composability and/or security
This article compiles five LSD projects that may have the most potential, exploring how they compete with market leader Lido in terms of technology, economics, and user experience, and becoming market disruptors by offering novel solutions.
Prisma’s first Mirror article was a sensation, positioning itself as the “ultimate game of liquidity staking tokens,” with the goal of using Curve’s flywheel effect to drive the adoption of its stablecoin (acUSD). Like projects such as Gravita and Lybra, Prisma uses Liquity’s model and has made adjustments to it, allowing acUSD to be minted against any of the top five LSDs (Lido’s stETH, Coinbase’s cbETH, Rocket Pool’s rETH, Frax’s frxETH, and Binance’s WBETH) with weighting and future integrations currently pending.
Theoretically, the desire to hold acUSD will incentivize more users to stake their ETH using liquidity staking tokens.
Besides transaction fees, acUSD liquidity providers will also receive CRV, CVX, and PRISMA tokens, as well as standard ETH staking rewards.
With launches on Curve, Convex, Frax, Conic, and LlamaNodes, Prisma has partnered with multiple heavy-hitting projects and has a high starting point.
Swell’s swETH LSD has garnered widespread community attention due to its current Voyage incentive program, quickly rising in ranking and surpassing $50 million in TVL. Swell promotes itself as aligned with Etherean values and aims to make the onboarding process easier for new users.
Users can buy ETH directly from their application via Google/Apple Blockingy, credit card, or bank account.
Partner integrations allow users to earn swETH returns directly by providing liquidity.
unshETH aims to incentivize benign competition in the LSD space by providing a diversified LSD consisting of a basket of underlying LSD. These LSD weightings are balanced via governance, currently including Lido’s wstETH, RocketPool’s rETH, Coinbase’s cbETH, Frax’s sfrxETH, Ankr’s ankrETH, and Swell’s swETH. Each governance decision will affect user behavior on the platform, as arbitrageurs are incentivized to balance unshETH-based LSD weightings.
In addition to standard staking rewards from the basket of underlying LSD, unshETH can also earn additional revenue through rebalancing fees.
Built on LayerZero means that unshETH can be natively transferred across chains, enabling novel liquidity strategies.
Inclusion in unshETH will bring new buying pressure to emerging LSD projects, making unshETH a potential launch partner.
4. Origin Ether
By combining an automated yield generation strategy with native ETH staking rewards, Origin Ether can offer generous rewards to its depositors. Similar to the other LSDs mentioned, OETH is supported on a 1:1 basis with the deposited ETH, which is distributed across various DeFi platforms to earn yield. Current yields come from (in order of weighting):
ETH-OETH Convex liquidity pool
Rocket Pool’s rETH
The high yield has enabled Origin Ether to accumulate about $35 million TVL in just one month.
Over the past 30 days, Origin Ether’s annual rate has been around 9%, twice that of some competitors in the same track.
Origin’s automatic yield strategy provides users with maximum convenience, eliminating the need to compare yields.
Diva hopes to combine the composability of liquidity staking with the decentralization brought by distributed verification technology. In short, DVT allows for verification of validator private keys through trust-minimized key sharing. In practice, users combine the composability of LSD with the decentralization advantages of running their own ETH nodes, without a minimum staking threshold.
DVT is a new technology that brings further decentralization to ETH staking.
DVT allows for node redundancy and better uptime, resulting in more stable returns.
The competition has yet to begin
Looking back, the day when the merger was completed was not too long ago, and ETH staking is still in its infancy. Compared to other Proof of Stake (PoS) L1 networks, the percentage of ETH used for staking is still less than 20%.
Assuming that ETH staking will eventually align with the PoS majority, staking protocols have plenty of time to carve out their own market. This article only showcases a small fraction of projects, all of which have their own unique features in the realm of liquidity staking derivatives, whether it’s easier to get started, new technologies, new use cases, or just higher annual rates, LSDfi has a lot of potential to be explored.