Crypto Narratives Alpha Series š 01
LSD is on fire!
Hey fren!
Iām starting The Gems Corner with a series on Crypto Narratives.
With the aim of giving you a sneak peak into the future of DeFi, and how best to position for maximum gains.
I have so much in store for you. Ride with me!
Liquid Staking Derivatives (LSD) is blowing up with the upcoming Ethereum's Shanghai Upgrade. I spent 1,439 minutes exploring the LSD narrative, so you don't have to.
Prior to the liquid staking era, staking crypto assets were one of the key ways of generating yields for investors. Even currently, it's still lucrative. But it's not without some drawbacks.
Accessibility, Immovability, and Illiquidity are the top drawbacks of crypto staking. Staked assets on DeFi protocols have stipulated lockup periods that limit users from neither trading or withdrawing their assets. But Liquidity Staking solves this problem.
With Liquid Staking, investors receive liquid staking derivatives in exchange for staking their assets, which represents their claim on the given stake pool and its yield. For instance, when you deposit ETH on Lido, you'll receive stETH.
Essentially, Liquidity Staking allows stakers to:
Get yields on their staked assets, and equally have the leverage of trading, lending, & using the assets as collaterals on other protocols.
Easily stake their assets without the need of becoming a validator.
Shanghai Upgrade
The most-anticipated Ethereum Shanghai Upgrade scheduled for Q1 will allow users unstake their ETH. Currently, users can't withdraw ETH, they can only use the derivative to trade on DeFi protocols.
But the Ethereum Shanghai changes everything.
ETH staking ratio currently seats at 13.79% with about $15M+ ETH deposited. This is just a tiny fraction, considering the size of the Ethereum network. The Ethereum Shanghai will not enable ETH withdrawal but also accelerate growth of some LSPs.
Key Players
Lido Finance
(stETH) Lido is a pioneer liquidity staking protocol, and the biggest in market share. Not just that, they're also the largest DeFi protocol, controlling about 16.03% TVL of the entire DeFi market.
Here, users deposit ETH in exchange for stETH in a 1:1 ratio. These stETH can be deployed on other platforms like Yearn, Aave, etc, increasing users capital efficiency.
The platform takes 10% of all staking rewards which are split between Lido DAO, & node operators.
Rocket Pool (rETH)
Rocket Pool is the second major player in the Liquidity Staking vertical with about 7% market share. Unlike Lido, Rocket Pool is permissionless and highly decentralised.
They've experienced an incredible growth since the Merge, and ain't stopping soon.
Similarly, you'll receive rETH for every ETH deposit on a 1:1 ratio. Rocket Pool's focus on node operator diversification is one of its key drivers. They're coming up real fast!
Stakewise (SWISE)
Stakewise is another innovative LSP coming up real fast. And they're set to launch their v3 before the Ethereum Shanghai upgrade. Interestingly, their v3 upgrade aims to increase solo stakers' ability to participate in liquid & delegated staking.
Stakewise v3 is also bringing more utility to $SWISE holders. For instance, pretty soon, users will be able to utilize $SWISE for insurance.
Frax Finance ($frxETH)
With Frax Finance, users can deposit ETH in exchange for $frxETH. Frax Finance offers about 8%APR: arguably the highest among LSPs. Incredible!
They're equally growing exponentially, especially with the Shanghai upgrade on site.
Innovative gems Apart from these top LSPs, there are some other promising ones with game-changing models.
Staderlabs
pStake Finance
Marinade Finance
Benqi Finance
Metta Pool
Risks of LSPs
Smart contract risk -
De-peg risk -
Slashing risk
Note: Don't FOMO due to the recent pumps. Always DYOR and take calculated risks.
See you soon!