Exploring New Concepts in DeFi: LSD and LSDFI

LSDFI refers to a group of protocols based on LSD . It encompasses a range of projects that may include traditional DEX (Decentralized Exchange) and lending protocols, as well as more complex protocols built using unique LST attributes. In simple terms, LSDFI acts as a DeFi building block based on LSD, unlocking the liquidity of tokens used for staking while increasing user profits through DeFi mechanisms.

The popularity of LSD and LSDFI can be attributed to Ethereum's shift from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism. This shift is driven by the fact that PoS requires users to stake a significant amount of ETH as collateral to secure the network and earn rewards.

As the second-largest blockchain project by market capitalization, Ethereum has a market cap exceeding $200 billion. Typically, PoS-based blockchains have staking rates ranging from 40% to 60%. With the expansion of the staking ecosystem, various demands have emerged, leading to the development of projects such as Lido, SSV, and other LSD initiatives.

According to a research report by Binance, LSDfi: When Liquid Staking Meets DeFi, LSDfi has gained significant momentum, although its scale is currently less than 3% of LSD itself. As an emerging track, there is still ample room for growth and expansion.

The LSD track itself has also seen a continuous increase in Total Value Locked (TVL). Here are the changes in the amount of ETH staked in liquidity protocols:

The report also mentions that while LSDfi maximizes ETH staking rewards, participants still need to be cautious of various risks as the track is still in its early stages. It is essential to strike a balance between returns and risks and lock in deterministic opportunities.

In the past year, the most popular LSDFI projects, such as Pendle and Lybra, have provided investors with returns several times their initial investment, calculated from the lowest point.

The LSDfi protocol has opened up new opportunities for LSD holders seeking to maximize their returns. By providing additional use cases for LSD, LSDfi incentivizes staking participation and has the potential to accelerate the growth of LSD.

The specific types and classifications of LSDFI are as follows:

• DeFi Liquidity Providers: DeFi providers that allow users to stake and earn LSD as rewards.

• CEX Liquidity Providers: Centralized exchanges (“CEXs”) that offer liquidity staking services.

• CDP Stablecoins: Protocols that allow users to create stablecoins by using LSD as collateral in Collateralized Debt Positions (“CDPs”).

• Index LSDs: Tokens representing a basket of LSD holdings.

• Yield Strategies: Protocols that offer additional yield opportunities for users.

• Money Markets: Protocols that facilitate lending and borrowing activities using LSDs.

Investors can explore opportunities based on the different classifications mentioned above.