LSDFi Analysis: Liquid Staking Derivatives Ignite a New Wave of Decentralized Finance

LSDFi is a DeFi product based on LSD, allowing LSD stakers to convert their staked ETH into tradable assets, unlock liquidity, drop the staking threshold, and earn LSD and multiple yields after staking.

LSDFi is backed by DeFi Lego, where new entrants attract users to stake ETH/LSD through incentives to gain market share and control over LSD. Some projects use dynamic yields to encourage users to choose small decentralized staking platforms to achieve validator decentralization.

LSDFi mainly has five forms:

1. LP( yield 10% + )

Establish an LSD-ETH Liquidity Pool, using tokens to subsidize and increase APY. Stakers receive network rewards and LP fee rewards. After the Shanghai upgrade, the LP scale may increase.

2. Circular lending ( yield 10% + )

Leverage betting on Ethereum through AAVE and LIDO's stETH:

• Stake ETH in LIDO to receive stETH
• Deposit stETH into AAVE and borrow ETH
• Repeat the above operation

The liquidation risk is relatively high, and the APR depends on the number of cycles. Automated cyclical lending products may emerge in the future.

3. Yield(10%+)

Aggregate earnings from multiple platforms and provide subsidies. For example, Yearn Finance increases the LSD APY to 5.89% by providing liquidity pools on Curve.

4. EigenLayer( revenue unknown)

Provide multiple staking methods:

• LSD stake: Assets already staked in Lido or Rocket Pool are re-staked to EigenLayer
• LSD LP stake: For example, re-staking Curve's stETH-ETH LP to EigenLayer

5. Incentive LSDFi Projects

Improve capital efficiency through leverage, structured strategies, options, bonds, etc., or attract savings with high APY.

Typical projects include:

Pendle: A Decentralized Finance yield protocol that provides staking services and liquidity pools. You can purchase $1,600 worth of ETH for $1,800, with a 10% price difference as profit. ( needs to be locked for 466 days. The liquidity pool yield is around 95.7%, mainly due to PENDLE token subsidies.

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-8ca7bec7c31708df1cc9a9df2fc2b4b7.webp(

Ion Protocol: Tokenizes LSD and collateralizable assets into allETH and vaETH. Plans to leverage EigenLayer and others for LSD yield aggregation.

![LSDFi War continues to heat up, detailing 5 strategies to generate excess returns])https://img-cdn.gateio.im/webp-social/moments-53fec1837985059610cfa6854fca60b9.webp(

unshETH: Improve validator decentralization through dynamic incentive allocation. Provide higher rewards to LSDs with low market share, encouraging users to choose small share platforms to stake ETH. Currently supports sfrxETH, rETH, wstETH, cbETH.

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LSDx Finance: The goal is to become a high-barrier DEX in the LSD asset segmentation market. Adopting a GLP architecture similar to GMX, a unified liquidity pool ETHx will be established.

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Liquid Staking Derivatives: LSD Aggregator maximizes asset leverage through tokenization and issuance of derivatives. Users stake ETH or LSD to receive token rewards.

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-04b182b48be746ec51e19adb34b7184d.webp(

Stader Ethereum: ETHx is coming soon. Users deposit ETH to receive ETHx, and ETH is allocated to three different pools. ETHx is expected to collaborate with 30+ Decentralized Finance protocols.

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-35e97619109e371218e5b435bb5f6e3c.webp(

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

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-54072636798dc9fbfa56eb8212705f0d.webp(

Parallax Finance: Providing liquidity infrastructure on L2. In addition to staking rewards, the Supernova product also offers leverage and lending services.

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-2b92720b45ce09a4d7e0f60713cc94c4.webp(

bestLSD: Real Yield aggregator, using aggregated收益 to subsidize its own LSD bestETH.

![LSDFi War continues to heat up, detailed explanation of 5 strategies to generate excess returns])https://img-cdn.gateio.im/webp-social/moments-066463fd83f6d1f5a0515e5e9c581e0e.webp(

0xAcid DAO: A management protocol for maximizing LSD asset returns. Most assets are placed in stable nodes, while part is put into high-yield strategies.

![LSDFi War continues to heat up, detailed explanation of 5 strategies to generate excess returns])https://img-cdn.gateio.im/webp-social/moments-2ed496a94b12f055d4b8b8872cd628a3.webp(

Index Coop: Issuing two LSDFi related products, dsETH and icETH. dsETH is composed of various liquidity staking tokens, while icETH is a leveraged liquidity staking strategy product.

![LSDFi War continues to heat up, detailed explanation of 5 strategies to generate excess returns])https://img-cdn.gateio.im/webp-social/moments-a9b6dce0941027b661222125336484e4.webp(

Gitcoin: In collaboration with Index Coop, launched gtcETH, with part of the proceeds used for public goods donations.

![LSDFi War continues to heat up, detailed explanation of 5 strategies to generate excess returns])https://img-cdn.gateio.im/webp-social/moments-3495e3188b2370e2171e74c782479492.webp(

Summary:

Incentivized LSDFi projects compete for LSD discourse power, which will determine future collaborative projects and the Decentralized Finance ecosystem.

The stability of the strategy is the contradiction of the LSDFi project; high returns may lead to sustainability issues, but high APY may become the norm in the short term.

Appropriate strategy: stake with liquidity staking providers outside the Top 3, utilizing yield subsidies and Decentralized Finance incentive projects for mining. Making good use of lending can increase returns but carries higher risks.

LSDFi currently has a limited impact on validators, but may increase the degree of decentralization of validation in the long term.

There is room for collaboration between projects, which may lead to the formation of products with different risk-return levels in the future.

The LSD War has started and may continue until the Ethereum staking rate stabilizes above 25%.

![LSDFi War continues to heat up, detailed explanation of 5 strategies for generating excess returns])https://img-cdn.gateio.im/webp-social/moments-638df68234df5bfb33b5969cc9a7c105.webp(

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