If you are looking for cryptocurrency trends to invest in the upcoming period, you definitely cannot overlook the field of Liquid Staking Derivatives (LSD). With Ethereum’s continuous successful upgrades, a new story has emerged. Liquid Staking Derivatives tools on Ethereum have attracted the attention of the cryptocurrency community, but why? Let’s analyze together to understand why this positively impacts LSD, and which are the most potential LSD projects.
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Top Most Potential LSD Projects 2024
What are Liquid Staking Derivatives (LSD)?
Before delving into what Liquid Staking Derivatives are and why they are considered a trend in 2023, let’s first recap some related terms to better understand.
– Staking: also known as “staking”. This is an action of holding and locking a certain amount of coins for a period, then receiving rewards from Staking. During the lock-up period, users cannot use these coins. Thus, this causes users to tie up capital and miss out on opportunities for additional profits on other DeFi platforms.
– Staking on Ethereum: After The Merge event last September, staking on Ethereum now generates real profits as validators stake 32 ETH to secure the network and earn rewards in the process. However, these 32 ETH are currently locked.
Of course, you can stake ETH yourself. The downside is that it will cost you 32 ETH (the minimum amount to run a node). Fortunately, many centralized and decentralized staking service providers have emerged, so you can stake ETH through these intermediary platforms, without needing that much ETH.
Data from Dune above shows that 33% of the total ETH is staked with decentralized providers, compared to 28% at CEXes. Lido controls 87.5% of the market share among those decentralized providers. On the other hand, Coinbase, Kraken, and Binance hold a significant % in all staked ETH.
– Liquid Staking Derivatives (LSD): Not just a simple intermediary service for staking ETH, LSD also allows for the creation of derivative assets of the staked assets. This means you will receive a new token equivalent in value to the staked token, which can then be used to participate in another DeFi protocol to earn profits.
Example: Lido Finance allows you to stake ETH and receive stETH in return. In addition to receiving staking rewards from the staked ETH, you can also use stETH in other protocols on EVM chains such as lending on Aave, participating in liquidity mining, or providing liquidity on AMMs.
In summary:
- Before LSD, you could choose one of two: staking in the protocol to participate in securing the network and receive block rewards, or participate in DeFi for profits.
- With LSD, users can perform both of these ⇒ two in one.
Top Most Potential Liquid Staking Derivatives (LSD) Projects
There are many liquid staking derivatives tools on Ethereum, some of which stand out more than others. Currently, according to Dune, the list has 11 names in total, with Lido leading with 75.72% market share, followed by Rocket Pool and Stakewise at 3.4% and 1.1% respectively, so I suggest these three platforms. If you are wondering where the rest of the % is, a large remainder resides in the group of Coinbase’s ETH liquid staking.
- You can look up the data directly from Dune: HERE
Lido Finance (LDO)
Lido is currently the most famous liquid staking platform, built since 2020. It quickly recognized the issues of Ethereum after upgrading to Ethereum 2.0 and adopting the PoS consensus mechanism, so it created features to make staking more flexible than ever.
After The Merge event, Lido Finance proved its influence by attracting a large flow of locked funds (TVL). From January 2023 to early February, TVL on Lido increased by over 37.2% (from $5.88B -> $8.02B).
With significant demand for “staking,” the ability for users to stake ETH and receive stETH on Lido Finance, which they can use in other protocols such as lending on Aave and some AMM platforms, underscores the importance of ETH.
Currently, Lido Finance accounts for nearly 30% of the total amount of $ETH “Staked” on the network, becoming the largest LSD platform on the Ethereum network today.
Rocket Pool (RPL)
Rocket Pool caught the community’s attention when on 18/01/2023, Binance announced the listing of Rocket Pool (RPL), leading many investors to pour money in search of opportunities, and this potential LSD sector also gained more attention.
Rocket Pool (RPL) is an Ethereum Staking platform launched in 2016. It allows individual users, businesses to use DeFi applications (dApps)… But Rocket Pool not only provides simple staking services, it also allows you to become Node Operators to receive certain additional rewards generated from other Staking Users on the Node.
Rocket Pool is attracting an impressive flow of funds recently. In January 2023 alone, its TVL nearly doubled (From $500m USD to over $900m). The growth potential of Rocket Pool in the coming time is entirely based on the large amount of funds attracted from the community. It has proven to be a formidable competitor, continuing to gain market share and aiming to compete with Lido in the future.
StakeWise (SWISE)
StakeWise is an Ethereum 2.0 Staking service that offers liquidity, allowing everyone to benefit from assets available on Beacon Chain combined with “Unique Tokenomics” to bring the highest possible staking profits for users.
Starwise Pool offers flexible staking. ETH deposits in the pool are converted into sETH2 and distribute daily Rewards to users. Similar to other LSD platforms, Starwise allows users to use the derivative Tokens received to participate in other activities to increase profits.
With the upcoming launch of StakeWise V3, it will add more liquidity staking features aimed at smaller investors, for example: no permission required, price protection feature, node operator selection privilege, and many less risky new staking methods… You can learn more:
The Beacon Chain is already too centralised – only 4 entities control a whole 60% of the stake.
Let's do something about it????
Introducing StakeWise V3 – a major upgrade to the StakeWise protocol aiming to help decentralize Ethereum.https://t.co/rLuFQgZQx8
— StakeWise (@stakewise_io) September 29, 2022
How to Look Up Liquid Staking Data on DeFiLlama
DeFiLlama has all the resources for DeFi and many free tools. Of course, the top 3 names I just suggested above are not guaranteed to always develop well in the future. If you are interested in the LSD sector, you can look up which project is leading the market share yourself.
– Access: https://defillama.com/
– In the DeFi tab, find “categories”.
– Then choose “liquid staking”.
– Filter to Ethereum and you will see all rankings of TVL for liquid staking on Ethereum.
OVERALL COMMENTS
The heat of the LSD trend revolves around Ethereum’s Shanghai upgrade, but I think it’s not just about investors looking for a place to stake after their locked ETH is about to be unlocked. Instead, it offers a viable alternative solution to develop a specific sector of DeFi and through LSD, makes assets more liquid, and certainly has many long-term potential footholds in this industry.
But when investing in LSD projects, remember that there is always a risk of price reduction. Many of these LSD tokens are pegged to the original token of the protocol, and any significant imbalance with the original token can lead to increased selling pressure and cascading negative impacts (as seen with Terra). Risks always exist, so invest and appreciate the technology but keep those risks in mind.
Wish you wisdom and a prosperous investment year.
