Comprehensive Analysis of LSDFi: In-depth Analysis of 5 Forms and Innovative Projects

LSDFi is a DeFi product based on LSD, which allows staked ETH to be converted into tradable assets through LSD, unlocking liquidity while lowering the threshold for staking ETH. Users can stake any amount of ETH, obtain LSD, and leverage LSD to generate multiple returns.

LSDFi is backed by DeFi Lego, where new projects attract users to stake ETH/LSD through incentives, thereby gaining market share and control over LSD. Some projects utilize dynamic yields to encourage users to choose smaller decentralized staking platforms to promote the decentralization of validators.

The following are the five main forms of LSDFi:

1. LP( yield 10% + )

Before the Shanghai upgrade, LSD could not be directly exchanged for ETH, resulting in many LSD-ETH liquidity pools. The base yield generally does not exceed 5%, mainly enhanced through token subsidies to increase APY. Stakers can earn network rewards and LP fee rewards. After the Shanghai upgrade, the scale of LP may increase.

2. Circular Lending ( Yield 10% + )

A large-scale leveraged bet on the Ethereum mainnet after the merge was conducted using AAVE and LIDO's STETH. Steps to operate:

• Stake ETH in LIDO to obtain STETH
• Deposit STETH into AAVE and borrow ETH
• Repeat the above operation

The liquidation risk is higher, and the APR depends on the number of cycles. In theory, all lending protocols can use this strategy, and automated cycle lending products may emerge in the future.

3. Yield(10%+)

Yearn Finance has created a liquidity pool on Curve, raising the LSD APY to 5.89%. Users can directly stake stETH, and the current pool value is $16.4 million. There are many similar established DeFi projects that increase yields by aggregating returns from multiple platforms and providing subsidies.

4. EigenLayer( yield unknown)

EigenLayer offers multiple staking methods, including Liquidity staking and Ultra-Liquidity staking. Ultra-Liquidity staking allows LP staking, specifically including:

• LSD stake: Assets that are already staked in Lido or Rocket Pool are staked again to EigenLayer
• LSD LP stake: For example, Curve's stETH-ETH LP Token is staked again to EigenLayer.

5. Incentivized LSDFi projects

Improve capital efficiency through leverage, structured strategies, options, bond derivatives, etc., or attract savings using high APY.

Representative projects include:

Pendle: A Decentralized Finance yield protocol that offers staking services and liquidity pools for ETH, APE, LOOKs, and more. Users can purchase ETH at a discounted price to gain profits through price differences, while also adding liquidity to earn returns.

Ion Protocol: Tokenizes LSD tokens and stake assets into allETH and vaETH. Plans to borrow LSD yield aggregation from EigenLayer and others.

unshETH: Improving the decentralization of validators through dynamic incentive allocation. Providing higher rewards to LSD platforms with lower market share, encouraging users to stake ETH on smaller platforms.

LSDx Finance: The goal is to become a high-barrier DEX in the LSD asset segmentation market. It adopts a GLP architecture similar to GMX to establish a unified liquidity pool ETHx.

Liquid Staking Derivatives: LSD aggregator solves liquidity issues and maximizes asset leverage through tokenization and issuance of derivative tokens.

Stader Ethereum: ETHx is coming soon. After users deposit ETH, the Stader Pools Manager will mint ETHx as a reward and deposit the ETH into three different pools.

Hord: stake ETH to obtain LSD hETH. Achieve higher APR through ETH staking, MEV rewards, and HORD subsidies.

Parallax Finance: provides liquidity infrastructure on L2. Its product Supernova not only offers staking rewards but also provides leverage and lending services.

bestLSD: Real Yield aggregator, uses the Real Yield subsidies obtained from aggregation to support its own LSD bestETH.

0xAcid DAO: A management protocol for maximizing returns on LSD assets. Most assets are placed in stable nodes, with a portion allocated to high-yield strategies.

Index Coop: Issuing two LSDFi related products, dsETH and icETH. dsETH is a diversified liquidity staking token index, while icETH is a leveraged liquidity staking strategy product.

Gitcoin: Partnering with Index Coop to launch the Gitcoin Staked ETH Index ( gtcETH ), with part of the profits used for public goods donations.

Summary:

• Many incentive LSDFi projects are competing for control of LSD, which will affect their future cooperation space and the construction of the DeFi ecosystem.
• The stability of the strategy is key to the LSDFi project, but high yields may become the norm over a longer period.
• For ordinary users, staking with non-Top 3 Liquidity Staking Providers and then participating in high APY projects for mining may be a better choice.
• The decentralized impact of LSDFi on validators is currently small, but may improve in the long term.
• There is broad cooperation space among LSDFi projects, and in the future, products with different risk-return levels may be formed.
• The LSD War may continue until the Ethereum staking rate stabilizes above 25%.