What are Liquid Staking Derivatives (LSD’s)?
A user’s staked assets are represented by liquid staking derivatives, which they may deploy in DeFi activities to generate additional income on top of their staking payouts. Liquid staking has gained popularity with the Ethereum Shapella upgrade, with Lido reaching a peak of almost $20.83 billion in TVL.
Users can stake their ETH in Ethereum, which is currently a Proof-of-Stake chain, to receive staking incentives. Since it is tied up on the Ethereum mainnet, stalled ETH is capital inefficient. One of the newest developments, liquid staking, addresses this issue by enabling users to get a liquid staked derivative token in exchange for staking ETH that they may use in DeFi.
For more information about Liquid Staking Derivatives (LSD’s), feel free to check out this Library post by Ninja News.
Are LSD’s on their way to outperform market again?
We had seen a massive growth in both TVL and market price on LSD tokens, including RPL, YFI, LDO, FXS. After Ethereum’s Shapella upgrade and shift towards Proof-of-Stake chain, users have been staking their ETH into LSD. Since ETH can now be unstaked with the Shanghai update, more users are expected to liquid stake their ETH, increasing the profitability of liquid staking providers. There are more and more liquid staking systems available on Ethereum.
According to WuBlockchain‘s post, there is going to be a huge amount of ETH’s will be unstaked. The market participants are of the opinion that these unstaked ETH’s may be heading towards ETH LSD’s, and the price impact of those expectations can already be seen on the chart above.
According to CryptoQuant, Coinbase had more than 53,400 ETH inflows today, of which 44,000 ETHs were transferred from the Coinbase cbETH deposit address 0xc7…a019 to Coinbase 10, which may be due to the cancellation of ETH staking.-WuBlockchain Research
Protocols becoming more decentralized by new audit proposals
According to GitHub of the Frax Finance, the protocol is currently having an audit. The aim and purpose of the proposal is that the Frax Finance will be a protocol that is fully decentralized. FrxGov is able to veto any transaction proposed by a multisig signer; replace a multisig signer, or propose any type of transaction.