How to best leverage LSDFi?

Supported LSTs and their integration into other DeFi protocols. Image credit: Amplified Finance.

For mass adoption even within DeFi, it is clear that this “DeFi 2.0” push is necessary to fully leverage the potential of LSDs. In the meantime, legacy DeFi protocols like Yearn Finance eased LSD exposure through a combinatory token yETH. By depositing one of seven supported LSTs, users mint yETH at an APR comparable to large Lido yield, at around 2.7%.

In the meantime, investors should look beyond native tokens into stablecoins.

By being tethered to the dollar, stablecoins are more suited for the lending arena, as they mitigate price volatility. In turn, this creates greater demand, and greater demand for stablecoins leads to greater yields. Case in point, locking up ETH in Lybra Finance to mint eUSD stablecoin typically delivers an APY between 6% to 7%.

Likewise, Ethereums rival chains have lower DeFi market share, leading to higher liquidity demand. 8.13%, in which SOL staking mints JitoSOL tokens – these can then move across DeFi apps similar to how users interact with on centralized crypto exchanges—except with the added benefit of earning staking yield.

JitoSOL tokens can then be used in MarginFi, Kamino Finance or Drift to earn even more JitoSOL yield rewards for supplying this liquidity. At the moment, however, Solanas JPool seems to deliver the highest yield for staked SOL, at 11.93% APY.

For investors looking to diversify liquid staking across multiple chains from a single platform, there is Meta Pool, currently holding TVL of $89.4 million across over 18k stakers and 8 supported chains.

The Bottom Line

LSDFi is a financial arena best suited for enthusiasts who have the time and curiosity to learn, experiment, and implement complex strategies. As with any intricate system, the more sophisticated it becomes, the more it introduces friction, deterring broad participation. For most, it is more expedient to speculate on memecoins, indulging in tokenized gambling despite their lack of fundamentals or utility.

Perhaps this is the greatest foible of DeFi and blockchain-powered finance. It is also the paradox of innovation: the most powerful tools are often the least accessible. While DeFi offers the promise of autonomy and open finance, fully engaging with it requires time, technical fluency, and a high tolerance for risk – barriers that exclude the majority.

Nonetheless, LSDFi provides a compelling glimpse into a post-bank financial future. And just as only a small minority grasped the value of Bitcoin early on, those who prioritize long-term fundamentals over short-term volatility may ultimately find themselves at the forefront of the next financial evolution.