New Delhi (India), May 30: Liquid staking derivatives (LSDs) have recently emerged as the hottest new crypto trend in the decentralized finance (DeFi) industry, allowing investors to earn rewards while still retain the flexibility to use their assets for other DeFi activities such as trading, yield farming, lending and borrowing.
With the liquid staking revolution, token holders can lock their tokens and receive a receipt token, called a Liquid Staking Derivative (or Liquid Staking Token), which shows proof of their ownership of the staked tokens and any rewards accrued to those tokens.
LSDs – A new frontier for stepping out rewards
Liquids derive their value from the underlying staked tokens, which are locked when placed on a Proof-of-Stake (PoS) network, hence the name ‘Liquid Staking derivatives (LSDs) tokens’.
LSDs are issued through LSD protocols, which allow stakeholders to increase potential returns by unlocking liquidity for their assets in play. By pooling tokens into a staking pool through a third-party liquid staking service provider, users can delegate their crypto to a validator node on a delegated PoS (DPoS) network.
What are the mechanisms of LSDs?
Basically, LSDs deploy two mechanisms in the market: Rebasable Liquid Staking Derivatives In the case of rebasable LSDs, the value of the liquid and usable token (LSD) representing the relevant asset and the staking asset will remain at a 1:1 ratio . This means that for every 1 ETH deposited on liquid staking protocols like Lido, users receive 1 stETH.
The balance of the liquid bribe is estimated daily when the oracle reveals the balance for the bribe.
Exchange Rate Based Liquid Strike Derivatives In this case, the value of the liquid strike token varies according to the accrued rewards and fees, but the balance remains the same. Depending on the LSD protocol, the exchange rate between the receipt token and the underlying asset changes daily depending on the rewards earned by the protocol’s Beacon Chain node operators.
What should the LSD projects look out for?
Since the Ethereum upgrade, the native tokens supporting LSD projects have been on the run. The LSD tokens associated with these projects generated higher percentage profits, at least 2x of Ethereum in 2023.
Liquid staking has quickly become an attractive investment opportunity for those looking to maximize the return on their assets. There are numerous liquid strike solutions on the market, each with its own unique model and product. Some of the best LSD projects in 2023 are:
Frax finance is the first fractional-algorithmic stablecoin system that aims to be scalable, decentralized and algorithmic money.
On Frax, users are allowed to stake ETH and earn stake rewards in the form of sfrxETH, which is redeemable for Frax ether token (frxETH) at a 1:1 ratio. The frxETH token can be traded on Curve’s liquidity pools or put into the game – where stakeholders can earn more than 6 to 10% APY.
These relatively high stake returns are extracted in CRV, FRAX and FXS, based on the liquidity stake pool.
The Frax protocol uses a dual token system – the FRAX stablecoin and a governance token, Frax Share (FXS).
Tenet deploys the Diversified Proof of Stake (DiPoS) mechanism to support staking with LSD assets from other chains, such as ETH, ATOM, BNB, SOL and ADA.
$TENET is used for payments within the platform. To use the Tenet network, you need the native token. When you deposit $TENET with a TENET Staking Provider, you will receive an LSD from TENET, known as tTENET.
tTenet must also be staked with the corresponding Staking Provider to receive validation rewards to secure the blockchain.
LSDs like stETH and cbETH can be used to join Tenet Validation and earn network transaction fees while still earning the Ethereum stake returns that the LSDs offer. Unlike other protocols, Tenet offers a zero management fee.
Lido has become one of the most popular platforms for liquid staking and has reached over $11.95 billion in assets. Its market cap is approximately $2 billion with a total circulating supply of $1 billion.
By staking Ethereum on Lido, users can earn the LSD token – stETH. With Lido, stakeholders will receive a high Annual Percentage Rate (APR) for staking Ethereum (4.8%), Solana (6.6%) and Terra (8.1%).
Lido charges a 10% fee which is distributed equally to both the node operator and the DAO. Since the beginning of January 2023, $LDO has done more than 300%. Despite the cost fee, investors are constantly attracted by its potential for higher returns.
StakeWise is a liquid Ethereum 2.0 staking service that aims to make staking as seamless and profitable as possible.
sETH2 (stake ETH) and rETH2 (reward ETH) tokens are issued to players in the pool. Built on the ERC-20 network, these tokens can be transferred or exchanged for other tokens to exit staking or leverage yield opportunities in DeFi protocols.
sETH2 and rETH2 token holders will be able to exchange their tokens for ETH from the StakeWise pool by burning their tokens. Token holders will be able to exchange sETH2 and rETH2 for 1 ETH each at a 1:1 ratio.
Ankr is the fastest growing decentralized web 3 protocol. It has a market capitalization of over $250 million and a fixed total supply of 10 billion ANKR tokens.
$ANKR is the backbone of the Ankr protocol. The utility token use cases include management, payment and for strike purposes. To earn a share of the rewards, token holders can lock their assets with Ankr network full of nodes.
ANKR token will be used for the operations of the Ankr network for providers, users and stakeholders.
Final Thoughts
Thanks to LSD protocols, there has been an increase in monetary returns for DeFi and staking has become more flexible and accessible to a wider variety of users who can now benefit from both staking rewards and liquidity.
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