1. What is LSDFi?
LSDFi is a DeFi protocol built on top of the liquidity-staking derivatives (LSD). LSD is a token that represents the staked ETH, such as stETH, rETH, wstETH, etc.
LSD can be freely traded on the market, providing liquidity and yield for stakers. LSDFi uses LSD as collateral or asset to provide additional yield opportunities and functions, including lending, trading, stablecoins, indexes, etc.
2. Current development status of LSDFi
- Explaining BIP 158 Compact Block Filters
- Polygon shares its Polygon 2.0 architecture, which consists of Staking Layer, Interoperability Layer, Execution Layer, and Proof-of-Stake Layer.
- Quick Overview of Ethereum Scaling Solutions Evolution: OP Stack, Arbitrum Orbit, Polygon 2.0…
As Ethereum transitions from PoW to PoS, more and more users participate in ETH staking, with over 23 million ETH currently staked. This has led to rapid growth of LSD, with a total market cap of over $16 billion. Lido is the major provider of LSD, with a 31.6% market share.
As the downstream application of LSD, LSDFi has also rapidly expanded in the past few months, with a total locked value (TVL) of over $400 million. The major LSDFi protocols include Lybra, Instadapp, Pendle, Raft, unshETH, and Asymetrix, each with their own features and advantages. We will briefly introduce and compare them below.
3. Major LSDFi projects
1. Lybra
Lybra is a stablecoin protocol based on stETH, which allows users to deposit ETH or stETH as collateral and mint eUSD. eUSD is an interest-bearing over-collateralized stablecoin, with interest derived from the staking yield of stETH. Users holding eUSD can earn an annualized yield of about 5%.
Lybra has the following advantages compared to other LSD protocols:
– It allows users to deposit ETH as collateral and mint eUSD without any borrowing fees or interest. Users can use the minted eUSD to buy more ETH, effectively leveraging ETH at zero cost.
– It provides a simple and efficient user interface for depositing, minting, and redeeming.
Lybra is currently the largest protocol in the LSDfi field, with a TVL of over $180 million.
2. Pendle
Pendle is a yield trading protocol that allows users to trade the principal and interest of LSD separately, to achieve better or more stable staking yield. Pendle supports various LSD assets such as stETH, rETH, and provides the following features:
– Use stETH or rETH to separate principal tokens (PT) and interest tokens (YT) in Pendle and trade them on the Pendle exchange or other platforms.
– Provide liquidity using PT or YT in Pendle and receive PENDLE tokens as rewards.
– Participate in governance in Pendle using PENDLE tokens and enjoy protocol income dividends.
Pendle has the following advantages over other LSDfi protocols:
– Pendle can split the yield of interest-bearing assets (such as frxETH, stETH, etc.), allowing users to buy assets through discounted means or trade the interest rate portion separately, thereby achieving more profit potential.
– Pendle uses vePENDLE as governance tokens. Users can lock PENDLE tokens to increase staking rewards, vote to decide reward allocation, share interest income and transaction fees, etc.
– Pendle supports various LSTs (such as stETH, frxETH, etc.) and other DeFi assets (such as APECOIN), providing users with diverse choices and strategies.
– Pendle is built on the Ethereum mainnet and Arbitrum, using a layer-2 scaling solution to reduce transaction costs and increase efficiency.
Pendle has grown into the second largest protocol in the LSDfi field, with a TVL of over $150 million.
3. Instadapp
Instadapp is a DeFi management platform that offers a variety of DeFi strategies and services, including LSDfi strategies. Using Instadapp’s asset management interface, users can use stETH and rETH as assets or collateral to pursue rich yield strategies.
Instadapp has the following advantages over other LSDfi protocols:
– It provides a variety of LSDfi strategies, allowing users to choose suitable strategies based on their risk preferences and yield objectives.
– It supports multiple LSD assets, allowing users to choose different staking providers and tokens.
– It provides a unified and powerful user interface, allowing users to manage their DeFi assets and operations in a one-stop manner.
Instadapp is currently the second largest protocol in the LSDfi field, with over $60 million worth of ETH locked (excluding other DeFi TVL).
4. Raft
Raft is a decentralized stablecoin protocol mainly based on stETH, which allows users to deposit stETH and mint R. R is a stablecoin anchored to $1, and its value comes from the stETH staking income. Holders of R can earn an annualized yield of about 4.5%.
Raft has the following advantages compared to other LSD protocols:
- It allows users to deposit stETH and mint R without any borrowing costs or interest. Users can use the minted R to buy more stETH, effectively leveraging long stETH at zero cost.
- It provides a simple and efficient user interface for depositing, minting, and redeeming.
- Note: Raft currently also supports rETH, but on a smaller scale.
- Raft is currently the fourth-largest protocol in the LSDfi field, with a TVL of over $60 million.
- 5, unshETH
- unshETH is a diversified LSD investment portfolio that includes LSDs of different types and sources, such as stETH, rETH, wstETH, etc. unshETH aims to provide users with optimized and stable staking returns. Holders of unshETH can earn an annualized return of about 5.5%.
- unshETH has the following advantages over other LSD protocols:
- It allows users to buy and redeem multiple LSDs with one click, without switching between different platforms and service providers.
- It allows users to enjoy staking rewards and trading fees from multiple LSDs, achieving income diversification and dispersion.
- It allows users to participate in the governance and dividends of unshETH and enjoy the long-term growth of the protocol.
- unshETH is currently the fifth-largest protocol in the LSDfi field, with a TVL of over $30 million.
- 6, Asymetrix
- Asymetrix is a protocol that provides asymmetric reward distribution, similar to a lottery where a few winners will share all the staking rewards over a period of time.
- The specific working principle is:
- Users deposit ETH (stETH) staked into a public pool supported by smart contracts. Once a user deposits to the Asymetrix protocol, the smart contract will mint PST (Pool Share Token) in a 1:1 ratio and send it to the user’s wallet.
- PST tokens reflect the user’s share in the protocol and are necessary for withdrawals.
- The Asymetrix protocol assigns a random reward coefficient to each user based on the amount and deposit time of stETH deposited by the user. This coefficient determines the proportion of rewards the user receives in the protocol.
- The range of reward coefficients is 0.5 to 2.0, with an average of 1.0. This means that some users will receive rewards above the average level, while others will receive rewards below the average level.
Asymetrix protocol provides users with a high-return and randomized experience through an asymmetric profit distribution, while also increasing the liquidity of stETH in the protocol. Asymetrix has the following advantages compared to other LSDfi protocols:
- Asymetrix protocol provides an opportunity for users with a small amount of ETH to participate in LSDfi. They can enjoy high returns and a randomized experience through asymmetric profit distribution.
- Asymetrix protocol uses Chainlink VRF as a random number generator to ensure the fairness and transparency of the lottery process.
- Asymetrix protocol uses TWAB (Time Weighted Average Balance) as an indicator that affects the odds, preventing large holders from “stealing” profits from small users at the last minute.
- Asymetrix protocol uses PST (Pool Share Token) as proof of a user’s share in the protocol. Users can withdraw their principal and earnings at any time.
- Asymetrix protocol uses ASX tokens as governance tokens. Users can participate in protocol governance and decision-making by holding ASX tokens.
Asymetrix is currently the sixth largest protocol in the LSDfi field, with a TVL of over $20 million.
IV. Opportunities and Challenges of LSDfi
LSDfi, as an emerging market, has great potential and opportunities, but also faces some challenges and risks:
1. The opportunities of LSDfi mainly come from two aspects: the growth of staked ETH and the penetration of LSDfi.
As Ethereum network transitions to PoS, staking ETH will become the choice of more and more users, and LSDfi can provide more liquidity and profit opportunities for stakers. Currently, the locked funds in LSDfi protocol only account for 2.4% of the total market value of LSD, which means that LSDfi still has a lot of room for growth.
2. The challenges of LSDfi mainly come from four aspects: staking penalty risk, LSD price risk, smart contract risk, and third-party risk.
Staking penalty risk refers to the risk that validators may face penalties for failing to meet specific staking parameters (such as being offline), and users holding LSD or LSDFi tokens may bear these penalty risks.
LSD price risk refers to the possibility of price fluctuations of LSD tokens due to the influence of market forces, which may differ from the underlying token. This may expose users to price volatility and potential liquidation risks, especially when used as collateral.
Smart contract risk refers to a new level of smart contract vulnerabilities that exist with each interaction between the user and each smart contract.
Third-party risk refers to the fact that some projects may include other dApps as part of their normal operation (e.g. yield strategies). In such cases, users are exposed to additional counterparty risks.
V. Summary
LSDFi is a DeFi protocol based on LSD that provides more liquidity and yield opportunities for stakers. The LSDFi protocol includes various types and functionalities, such as lending, trading, stablecoins, indexes, and more.
The main projects in the LSDFi protocol include Lybra, Instadapp, Pendle, Raft, unshETH, and Asymetrix, each with its own features and advantages. Such protocols are rapidly developing alongside the growing LSD market.
As an emerging market, LSDFi has great potential and opportunities, but also faces certain challenges and risks. Users should fully understand the relevant information and risks when participating in LSDFi, and make their own judgments and decisions.
Like what you're reading? Subscribe to our top stories.
We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!
