After the DeFi boom in 2020, over-leveraging led to market collapse and most DeFi innovations disappeared. Now, only the leading projects in sub-sectors such as lending and DEX remain stable. However, with the rise of liquidity staking derivatives (LSD) and the emergence of assets based on underlying yields, a new wave of LSDfi has been opened up.
LSD has become one of the main DeFi trends, providing consistent, low-risk passive income while helping to maintain the blockchain network. Despite most of the innovation in DeFi having faded away, LSD has found new direction with its unique abilities and potential. If this trend continues, LSD and LSDfi could lead a new round of growth in DeFi, bringing more innovation and opportunities.
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LSD Yield Strategy
LSDfi is a protocol set based on LSD, which may include classic DeFi protocols such as DEX and lending, as well as more complex protocols that utilize unique LST properties. As LST is widely adopted, they will play an important role in DeFi.
Liquidity staking projects have established the foundational layer in DeFi. The next layer includes projects built on top of LSD, creating more complex products.
LSD has become the main category of TVL, with Lido being the largest project. Therefore, LSD plays a crucial role in driving the growth of the entire DeFi ecosystem, which is only natural.
DeFi integration is an important trend in the LSD industry. In fact, LSDfi is the result of this evolution. As this trend continues to gain momentum, LSD is becoming one of the main forces in DeFi.
Now, LSDfi has developed into an entire industry within DeFi that is actively developing. This includes not only classic DeFi protocols, but also more complex protocols.
For example, Baskets, stablecoins, yield strategies, and so on.
New Business of Classic DeFi
LSD has long been an important part of classic DeFi. Many LSTs can be used as collateral and traded on DEXs. With the increasing popularity of LSD, we can expect to see DEXs or aggregators specifically designed for LSD.
Examples of LSTs in classic DeFi:
$stETH as collateral in @AaveAave
LSD pools in @CurveFinance
LSD vaults in @yearnfi
Some LSD-focused protocols include @LSDxfinance , which is similar to Curve, and @catinaboxfi as a lending protocol.
For ETH, there are numerous liquidity collateral solutions, so there is a protocol that can combine them into a basket and create an index. This approach allows for risk diversification, making investing in LSD more convenient.
Some LSD Baskets:
@indexcoop – Introduces two LSD indices, dsETH and icETH.
dsETH includes top ETH LSTs, while $icETH uses leverage.
@unsheth_xyz – Launches $unshETH containing top ETH LSTs.
@asymmetryfin – Deposit ETH and receive $safETH supported by the TOP3 LSTs.
LSD Yield Strategies
LSD is a token that generates continuous income. Naturally, you can develop strategies around it. For example, distributing it to different pools, using it as collateral, using leverage, managing staking rewards.
Yield strategy protocols
@0xAcidDAO allows you to invest ETH in a diverse basket originating from original LSTs and various strategies.
@Blockingrallaxfin is a leveraged LSD yield strategy platform that aims to integrate multiple LSTs.
Another method, @pendle_fi, provides a unique approach: it is a platform to buy futures. You can buy ETH at a discount and receive it later while investing it in a specified LST.
Asymmetric Yield Protocol
@asymetrix_eth is an asymmetric yield distribution protocol generated by staking. This is similar to a lottery, where some winners share all the betting rewards from that period.
Inspired by Premium Bonds, it follows a similar logic.
Using LSD as an over-collateralized stablecoin is a very reasonable choice. LSDs will continue to generate income from staking, making them yield stablecoins. In this case, everything is backed by ETH.
Stablecoins backed by LSD
$eUSD provided by @LybraFinanceLSD
$aUSD provided by @agility_lsd
$R provided by @raft_fi
LSD has become the standard for any PoS ecosystem and is already one of the main DeFi trends.
LSD generates consistent, low-risk passive income and helps maintain the blockchain.
LSDfi is the logical extension of LSD. It creates a comprehensive economy that can generate significant income on the one hand and simplifies interaction with the LSD project on the other.
LSDfi will continue to evolve, and we will gradually witness an increase in the complexity and uniqueness of the project. Let’s watch its progress in the future.
In the text, I have chosen the most interesting projects. But perhaps you know more.
I would be happy to receive your suggestions.
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