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The LSDFi Battle Begins: Five Forms to Unlock ETH Stake Rewards
LSDFi is a DeFi product based on LSD, which allows staked ETH to be converted into tradable assets, unlocking liquidity. LSD lowers the staking threshold for ETH, allowing any amount to be staked, and after staking, users receive LSD, while also being able to utilize LSD to generate multiple returns.
LSDFi is built on DeFi Legos, and behind the composability of DeFi is the yield Lego. New entrants attract users to stake ETH/LSD on their platforms through incentives and other means, thereby gaining market share and control over LSD. Some LSDFi projects use dynamic yield to incentivize users to stake on smaller decentralized platforms, aiming for a more decentralized validator network.
The following are the five forms of LSDFi:
1. LP( yield 10% + )
Before the Shanghai upgrade, LSD could not be directly exchanged for ETH, and many DeFi projects established LSD-ETH liquidity pools. Taking stETH as an example, the base yield does not exceed 5%, and the APY is mainly increased through token subsidies. Stakers not only receive ETH staking rewards but also LP fee rewards. After the Shanghai upgrade, the LP scale may continue to increase.
2. Circular borrowing ( yield 10% + )
Leverage betting on Ethereum merge mainnet activation through AAVE and LIDO's STETH:
The clearing risk is relatively high, and the APR depends on the number of cycles. Theoretically, all lending protocols can be operated, and automatic cyclical lending products may emerge in the future.
3. Yield(10%+)
Yearn Finance has created a liquidity pool on Curve, increasing the LSD APY to 5.89%, with the option to directly stake stETH. Currently, the pool is valued at 16.4 million USD. There are many similar old projects that increase returns by aggregating yields from multiple platforms and providing subsidies.
The involvement of established DeFi players like Yearn in the LSD sector reflects the importance of this track.
4. EigenLayer( yield unknown)
EigenLayer offers various staking methods, including Liquidity staking and Super Liquidity staking. Super Liquidity staking allows LP to stake, specifically including:
5. Incentive LSDFi projects
Improve capital efficiency through leverage, structured strategies, options, bond derivatives, etc., or attract savings or achieve other purposes by utilizing high APY.
Pendle: A DeFi yield protocol where users can execute various yield management strategies. Originating from derivatives, it offers stake services and liquidity pools for ETH, APE, LOOKs, etc. In short, ETH priced at $1800 can be purchased for $1600, with a 10% price difference being the yield. ( needs to be locked for 466 days ), while also earning yield by adding liquidity.
The liquidity pool yield is currently built on Lido or Aura, and after locking for a certain period, it gains yield with Pendle subsidies. The current yield is considerable, with a discount price of ( for about a one-year lock-up period at )12.5%. The annualized yield for putting into the Pool is about 95.7%, but the high APY mostly comes from PENDLE token subsidies.
Ion Protocol: The project is not yet online. The principle is to tokenize LSD tokens and collateral assets into allETH and vaETH. allETH is an ERC-20 token, 1 ETH = 1 allETH. vaETH tracks all the earnings earned from the allETH position.
The project will utilize EigenLayer and others for LSD yield aggregation, and currently, no further information has been disclosed. It is in the early stages, with 266 followers on Twitter and 38 people on Discord.
unshETH: A protocol that enhances the decentralization of validators through dynamic allocation of incentives. It offers higher rewards to LSDs with lower market share, while leading LSD platforms provide fewer staking rewards, guiding users to stake ETH on smaller platforms to promote decentralization.
Currently, only sfrxETH, rETH, wstETH, and cbETH are supported, and we are still far from the goal of decentralization:
Direct staking requires a lock-up period, exchanging LSD/ETH for unshETH. Staking unshETH yields about 500%, and the tokens can be further staked for about 70% returns. The LP Pool depth is approximately $580,000, with LP transaction fee income at 60%, and the staking platform receives 666%+ APY incentives. The utility of the tokens is still unclear, and adopting a veToken model decided by the USH DAO may make it easier to achieve the goals.
LSDx Finance: The goal is to become a high-barrier DEX in the LSD asset segmentation market, capturing market share of LSD asset liquidity. It adopts a GMX-like GLP architecture to establish a unified liquidity pool ETHx and plans to launch the stablecoin UM.
48-hour lock-up of 55,000 ETH, 8,000 new followers in 2 days, tokens listed on Bitget and MEXC, backed by Foresight Ventures investment, and the team is well-prepared.
The number of supported LSDs is relatively small, and not all functions have been developed, leaving significant room for expectations. Note that after the 16th, there will be a 14-day genesis mining phase, with the first halving of rewards occurring after 4 days.
Liquid Staking Derivatives: An LSD aggregator that solves liquidity issues through tokenization and issuance of derivative tokens to maximize asset leverage. Users stake ETH or LSD to earn token rewards, with the reward token LSD available for veLSD governance decisions or LS-ETH liquidity Decentralized Finance investments. Community members who voluntarily lock up LSD receive a staking ETH reward multiplier.
Directly staking ETH to obtain LS-ETH can earn a 6.3% APR. The official website shows only 1.24 ETH staked, which is at a very early stage. The LSD liquidity pool is built on Uniswap V2, valued at approximately $400,000, with an FDV of $5.68 million.
Stader Ethereum: The ETH product is not yet online. Previously, liquidity staking was done on other chains, and ETHx is about to be released. When users deposit ETH, the Stader Pools Manager mints ETHx as a reward and deposits the ETH into three different pools (, each pool corresponding to a validation node, with different technologies: individual operation of 4 ETH, supported by DVT technology, and cooperation with operators ). ETHx is expected to collaborate with 30+ Decentralized Finance protocols, releasing composability.
To run a node, each validator must deposit 4 ETH and provide 0.4 ETH worth of SD tokens as collateral (, with a maximum stake of 8 ETH in SD ). To incentivize node operators, Stader will distribute approximately $1-2 million in SD tokens to validators in the first year. Nodes can earn a 5% commission from rewards from other users.
Hord: stake ETH to earn LSD hETH. Rewards accumulate in the staking pool, increasing the value of hETH over time. The project achieves a higher APR through various means:
Current APY 17.9%, staked amount 223.22 ETH, number of stakers 57, FDV 12.8 million USD.
Parallax Finance: provides liquidity infrastructure, enabling individuals, DAOs, and other protocols to generate returns on L2( currently only available on Arbitrum). It is in the testing phase, and usage requires obtaining Tester qualifications. Its LSDFi product Supernova not only offers users staking rewards but also provides leverage and lending services for staked assets. ( has not issued tokens yet, and you can apply for testing qualifications ).
bestLSD: The testnet is about to start, possibly a Real Yield aggregator, using the Real Yield subsidies obtained through aggregation to support its LSD - bestETH. From GMX to GLP, from veCRV to veVELO, all assets that can generate strong actual returns are under consideration, and currently, the Doc and website are relatively simple.
0xAcid DAO: A management protocol that maximizes LSD asset returns, soon to be launched on Arbitrum and Ethereum. Main strategy: Most assets are placed in stable nodes, with some allocated to high-yield strategies such as Frax and Aura LP Pool, which have token subsidies. Today announced a collaboration with Pendle for yield leverage, with its own lending, LP, and other services.
Potential DeFi Lego possibilities of EigenLayer:
Index Coop: A decentralized cryptocurrency index community initiated by Set Protocol. Mainly issues two LSDFi related products:
dsETH supply is 485, with a fee of 0.25% and an APY of 4.59%. icETH supply is approximately 10,000 ETH, with a fee of 0.75% and an APY of 5.26%, supporting only stETH.
Gitcoin: In collaboration with Index Coop, launched the Gitcoin Staked ETH Index ( gtcETH ). The gtcETH yield comes from user staked ETH/LSD/USDC in various strategy pools, with Gitcoin and Index Coop sharing 2%, of which 1.75% from Gitcoin is used for public goods donations, showcasing a new utility scenario. Currently, the supply is 113.85 ETH.
Summary
Incentive LSDFi projects compete for LSD control, directly affecting the number of future collaboration projects and DeFi Lego. A few players may ultimately remain, and Lido's dominant position may be challenged.
The stability of the strategy is a contradiction in the LSDFi project; high returns may impact sustainability, but a 100%+ APY may become the norm in the short term.
From the perspective of returns, staking liquidity providers outside of the Top 3, such as frxETH(, are better, utilizing Frax subsidies to achieve a 10% return, and then looking for high APY projects that promote decentralized verification), such as unshETH and LSDx( for mining and timely selling. Proper use of lending protocols can increase APY to over 1000%), which is extremely high risk(.
The impact of LSDFi on validators is still small, with LP+ token subsidies being