Liquid Staking Derivatives (LSDs) was all the rage in 2023 leading up to Ethereum’s Shapella upgrade. Explore DeFi protocols building on top of LSDs — also termed LSDFi.
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Liquid staking derivatives (LSDs) have gained significant attention in 2023, particularly with the Shapella upgrade for Ethereum. In simple terms, LSDs are financial instruments that represent staked tokens within a DeFi protocol. They allow users to stake their tokens while retaining the flexibility to use these LSDs in other decentralized applications (DApps).
Before the Shapella upgrade, staked ETH was locked on the Ethereum beacon chain. LSDs provided liquidity to stakers while their ETH tokens secured the blockchain. After the successful completion of Shapella, Ethereum withdrawals became possible, making staking more appealing and boosting the popularity of LSD protocols. In fact, LSD protocols now have more total value locked (TVL) than decentralized exchanges (DEXs), totaling around $19.5 billion.
As LSDs gained popularity, a sub-sector of DeFi, known as LSDFi, emerged to capitalize on this trend. LSDFi protocols build on top of LSD tokens, offering opportunities such as borrowing against LSD tokens, speculating on or hedging against LSD token yields, creating indexes of LSD tokens, and more.
Lybra Finance: Lybra Finance is an interest-bearing stablecoin protocol where users can deposit ETH or Lido Staked ETH (stETH) as collateral and borrow Lybra’s stablecoin, eUSD, with a collateral ratio of up to 170%. Lybra does not charge fees for eUSD minting or interest on borrowed amounts. Users can earn yield by holding eUSD, participate in liquidity provision in eUSD pools, engage in ETH leveraged long strategies, and earn token incentives in LBR, Lybra’s governance token.
Gravita Protocol: Gravita Protocol allows users to deposit yield-generating tokens like Lido wstETH and borrow GRAI against their collateral, offering a high loan-to-value (LTV) ratio of up to 99%. The protocol also has a stability pool to manage risk and ensure GRAI is sufficiently backed. Users can earn from liquidation bonuses and potential airdrops of Gravita’s governance token, GRVT, for stability pool depositors.
Curve Finance: Curve Finance, a well-established DeFi protocol, introduced crvUSD, a collateralized debt position (CDP) stablecoin backed by ETH LSDs. CrvUSD uses the Lending Liquidation AMM Algorithm (LLAMA) to gradually liquidate collateral, reducing losses compared to traditional full liquidation approaches.
Alchemix: Alchemix offers self-repaying loans, allowing users to deposit stETH or rETH and borrow alETH tokens. These loans have a 50% loan-to-value (LTV) cap and benefit from a self-repaying mechanism over time.
Unsheth: Unsheth allows users to deposit ETH, WETH, and selected LSDs, receiving unshETH tokens representing a stake in a basket of LSDs. Users earn from swap fees, minting and redemption fees, and liquidity provision on Unsheth’s DEX.
Origin DeFi: Origin DeFi offers Origin Ether (OETH), a stablecoin backed by a basket of trusted LSDs. OETH holders benefit from DeFi strategies across various protocols, diversifying their risk and potentially outperforming base ETH staking yields.
Asymetrix Protocol: Asymetrix Protocol provides a no-loss lottery on ETH staking yields, where rewards are distributed asymmetrically based on luck. Users deposit stETH and receive rewards every week, with the reward amount determined by luck but no risk of losing deposits.
Pendle: Pendle is a DeFi protocol that tokenizes and trades yield, allowing users to control their yields and engage in advanced yield strategies. It splits yield-bearing tokens into principal tokens (PT) and yield tokens (YT), enabling trading based on expected future yield.
Flashstake: Flashstake lets users receive their yield upfront by “time-traveling” into the future, locking their tokens for a selected duration. Users can repay the yield later, potentially profiting if the yield decreases during the lock period.
These LSDFi protocols offer a wide range of opportunities for DeFi users, from stablecoin borrowing to yield speculation and advanced trading strategies. Each protocol has its unique features and benefits, catering to different preferences and risk appetites in the ever-evolving DeFi landscape.
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