What is LSDfi?
LSDfi stands for Liquid Staking Derivatives Finance, which refers to DeFi protocols built and operated on top of Liquid Staking platforms. These protocols cover the basic pieces of DeFi like DEX, Lending or more complex projects in order to take advantage of the unique properties of LSD. LSDfi allows users to flexibly use their LSD assets for many different purposes, while helping LSD tokens improve liquidity, enhance capital efficiency and generate profits in the DeFi ecosystem.
For validators on Ethereum, LSD is a very important factor. Before the Shapella upgrade went live, their staked ETH were unable to withdraw from the network. That’s when LSD protocols such as Lido Finance, RocketPool, Frax, etc. were launched, allowing validators to stake ETH and receive LST (Liquid Staking Token). LSTs help users who staked ETH to increase profits and capital efficiency while still ensuring their role as validators.
After Shapella took place in April 2023, validators’ concerns regarding not being able to withdraw their ETH from the network were eliminated. At the same time, users of LSD protocols were able to easily convert LSTs to ETH at a 1:1 ratio. This makes staking an attractive opportunity for ETH speculators.
As a result, more and more LSD protocols launched with attractive offers to attract users to stake ETH into their platform. As LSDs become more and more popular, another concept has emerged, aiming to open up opportunities to earn profits for LSD users, that is LSDfi.
The LSDfi ecosystem refers to a set of protocols based on Liquid Staking Derivatives (LSD) that encompass various aspects of the DeFi ecosystem.
Pieces in the LSDfi ecosystem include:
- DeFi liquid staking providers: DeFi providers that enable users to partake in staking and receive LSDs in return.
- CEX liquid staking providers: CEX exchanges that provide staking services.
- CDP Stablecoin: CDP stands for Collateral Debt Position, which means collateral debt positions. CDP protocols allow users to use LSD tokens as collateral to mint stablecoins.
- Index LSD: Users will lock their tokens to be able to receive LSD tokens. This way, they will be able to hold more LSD tokens to maximize the return on their assets.
- Yield Strategy: Protocols that enable users to access additional yield opportunities.
- Money Market: Protocols that facilitate lending and borrowing activities using LSDs.