Why Are LSDs Important?
LSDs have become very popular, especially in the Ethereum network. They’re expected to spread to other networks too, such as Solana, Avalanche, and Polygon. This popularity is due to the extra earnings they provide to DeFi users. They make staking more flexible and accessible, allowing more people to benefit from both staking rewards and liquidity.
Lido is currently the biggest name in the liquid staking market. It accounts for nearly 77% of the total market share in the Ethereum chain. This dominance highlights Lido’s significant role in the growth and adoption of LSDs.
In this post, let us look at the top liquid staking platforms across top blockchain platforms.
Best Protocols under Liquid Staking Derivatives (Across ETH, SOL, and Multiple chains)
In the past, the idea of staking your tokens has been associated with locking up the funds. Staking often requires token holders to close up their assets for extended periods, during which they are unable to leverage their tokens for other profitable activities. This has acted as a barrier for some users to partake in any kind of staking.
However, with liquid staking in play, token holders can enjoy the advantages of staking while also retaining access to their assets for other activities. This increased flexibility not only makes staking more accessible for token holders but also helps to increase the overall security and soundness of networks. This has made liquid staking an increasingly popular option in the DeFi space.
What an LSD does is that it establishes the participation of the user who is staking the tokens in the pool. These tokens can then be utilized in a variety of DeFi applications, including trading and collateralizing loans.
Some of the top protocols of Liquid staking derivatives across top blockchains include:
- Lido: Ethereum, Solana, Polygon
- Coinbase: Ethereum
- Rocket Pool: Ethereum
- Frax: Ethereum
- Ankr: Ethereum, Polygon, Avalanche, Binance Chain, Fantom, Polkadot
- Stakewise: Ethereum and Gnosis
Lido DAO has emerged as a leading player in the liquid staking sector across multiple chains (Ethereum, Solana, Polygon) with its native token, LDO. Users can stake ETH on Lido and in return get some stETH. This stETH can then be utilized through the entire DeFi network to generate even higher incentives. As of December 14, 2023, the current TVL on Lido stands at around 20.87 billion dollars.
How does Lido make money? Lido DAO is a Liquid Staking protocol that charges a 10% fee, which is then distributed equally amongst both the node operators and the DAO. Despite the fee, the popularity of Lido and the potential for higher returns continue to attract investors to the platform.
Lido makes 81.54 million USD per year. The current market is 2.06 Billion USD
Rocket Pool is one of the most well-known providers of liquid staking services currently.
In September 2021, Rocket Pool conducted the launch of its LSD, which was a significant milestone for the company. Notably, their commitment to their ethos makes them one of the most decentralized options among the providers we have in this industry.
Node operatives on the Rocket Pool network receive a delegation of 15 percent, which covers their operational costs and incentivizes them to provide top-notch services to their customers.
In addition to this, Rocket Pool also implements a staking mechanism that requires validators to collateralize at least 10 percent of their 16 ETH staked. By using RPL (the company’s native coin) as security, Rocket Pool encourages the token’s adoption, thereby driving its value up and increasing the company’s revenue potential.
The Current TVL is 2.634 Billion USD.
Market share: 9.45%
In August 2022, Coinbase finally unveiled its liquid staking derivative (LSD) after careful consideration of the current market trends. This decision was partly influenced by Lido’s massive popularity and supremacy, which threatened to undermine the decentralization ideals of the cryptocurrency world.
Coinbase’s LSD comes at a premium cost, with a steep 25% charge that exceeds that of other LSD firms. Additionally, they also retain control over these derivatives, which some may view as a disadvantage. However, it’s important to acknowledge that their approach aligns with the stringent regulations imposed by U.S. authorities, making them one of the most highly regulated exchanges in the industry. Remarkably, in a brief period, Coinbase captured a 1.41% share of the market, equivalent to 28 Million ETH, in addition to establishing their unique liquid token, cbETH.
Current TVL is $478.31 Million.
Frax Finance is a trailblazing platform that has disrupted the crypto world with its innovative ideas. It has pioneered the creation of the first-ever “fractional stablecoin and crypto native consumer price index”, an industry game-changer. At the core of Frax’s approach is its unique dual token structure.
This allows them to offer an unprecedented yield of approximately 8%, making them an ideal choice for investors seeking high returns. Additionally, Frax provides a liquidity pool on the platform Curve. It’s important to mention that the pool incentives are represented in either FXS, CVX or CRV. Even though these rewards are not in ETH, this does not diminish the platform’s appeal.
Remember that with Frax, you’ll have an opportunity to receive staking bonuses only by staking some sfrxETH. The Frax Protocol is a true leader in the crypto space, having familiarised the groundbreaking concept of a cryptocurrency that is partly subsidised via collateral and partly receives algorithmic stabilization.
At the current rate, Frax makes 19.33M USD per year. 10% of it is distributed to Frax stakers.
The Current TVL is $691.12 Million.
Ankr is a popularly growing decentralized web3 protocol, empowering developers to build and deploy DApps with ease. This platform functions through its great infrastructure and is powered by its very own utility token called ANKR. The ANKR token serves a variety of purposes within the Ankr ecosystem, including governance, payment for the functionalities provided by the platform, as well as for staking purposes.
However, one of the most exciting features of ANKR is its capability to generate farming incentives through staking assets on the platform, in return for some ankrETH. These farming rewards can be compounded if you decide to further stake them in liquid staking derivatives, creating a powerful effect that can boost returns significantly. With Ankr, users have the opportunity to earn attractive rewards while also playing an active role in the governance and development of the platform.
TVL: 71.56M USD
StakeWise is an innovative Liquid staking platform that was established in March 2021. It is a true game-changer in the world of Ethereum staking platforms, as it uncovers the full profit possibility of ETH2 for those who use DeFi regularly. The StakeWise DAO is responsible for managing the platform, which employs the SWISE token for multiple governance functionalities. It aids users to utilize the coin for various voting purposes and as a result, encourages them to embrace the platform.
At its core, StakeWise is designed to be non-custodial, giving users full control over their assets at all times. What Stakewise does is that it tokenizes the incentives stakers receive individually and independently of what they deposit as funds. Through this, it includes the chance to involve the ETH reserves that have been staked in other decentralized finance services. Stakewise also enables users to reinvest what they yield, and efficiently handle their investments and staking funds.
The current TVL is 117M USD. Stakewise platform generates a yearly revenue of 6.17M USD, 10% of which is paid back to the users of the platform.
Risks Associated with Liquid Staking Derivatives
Here are some of the potential drawbacks associated with the utilization of liquid staking derivatives:
- Counterparty Risk: Liquid staking derivatives are issued by third-party protocols, which introduces the possibility of default or non-performance.
- Illiquidity: Liquid staking derivatives may lack liquidity, posing challenges in selling them swiftly if the need arises.
- Smart Contract Risk: Liquid staking derivatives rely on smart contracts, making them susceptible to potential bugs or hacks.
While you may earn interest on ETH deposits, you should also consider the potential risks.
Top Tokenless Liquid Staking Platforms (Upcoming Tokens)
Best Liquid Staking Platforms on Ethereum Blockchain
- Frax Ether
- Swell Liquid Staking
- Liquid Collective
Best Liquid Staking Platforms on Solana Blockchain
- Marinade Finance
LSDs are a game-changing innovation in the DeFi ecosystem. They provide additional financial opportunities for stakers and are rapidly gaining traction. As the DeFi landscape evolves, we can expect more such innovative products, which will likely drive further growth and wider adoption.
Future of Liquid Staking Platforms in 2024 and Beyond
The future of Liquid Staking Tokens (LSTs) in decentralized finance (DeFi) appears to be highly promising and transformative, driven by several key trends and developments. Here are five points highlighting the anticipated future of Liquid Staking Platforms:
Growing Total Value Locked (TVL) and Market Dominance
LSTs are expected to continue their growth trajectory in terms of TVL. Currently, a significant portion of the TVL in DeFi is attributed to LSTs, with a dominant focus on Ethereum-based tokens. This trend is likely to persist as more users and investors recognize the convenience and efficiency of LSTs in staking without the need to manage validator nodes or hardware.
As of 14th December, the Liquid Staking Platforms TVL is 27 Billion USD, and is expected to cross 100Billion USD by 2026.
Innovation in LST Architecture Models
The evolving LST space is likely to witness further innovation in token architecture. The three main models – rebase tokens, rewards-bearing tokens, and wrapped tokens – each offer unique benefits and appeal to different user segments. Future developments may include new types of LSTs that blend these models or introduce entirely new functionalities to enhance user experience and financial returns.
Integration with Other DeFi Sectors and Technologies
LSTs are becoming integral to various DeFi applications, including lending platforms, yield aggregators, and stablecoin protocols. The intersection of LSTs with other DeFi sectors is likely to lead to novel financial products and services, offering users more sophisticated and diverse investment strategies.
Impact of Blockchain Oracles and Restaking Concepts
The role of blockchain oracles in providing accurate data for collateral valuation in LSTfi (LST finance) is crucial. Additionally, the concept of restaking, as exemplified by platforms like EigenLayer, is poised to reshape the DeFi landscape by enhancing crypto-economic security and accessibility. These developments will likely lead to more robust and efficient DeFi ecosystems.
Centralization vs. Decentralization Debate
The ongoing debate around centralization in LST protocols, particularly with market leaders like Lido, will remain a pivotal issue. The push for decentralization in ETH staking is expected to gain momentum, with new protocols advocating for more decentralized approaches. This shift may lead to increased competition and innovation in the LST space, as well as greater assurance of security and trust for users.
Overall, the future of LSTs is marked by continuous growth, technological advancement, and an evolving landscape that balances innovation with user security and trust. As the DeFi sector matures, LSTs will likely play an increasingly vital role in shaping the future of digital finance.
If you have more questions related to LSDs, feel free to share your doubts in the comment section.
Want to learn about other crypto narratives? I highly recommend you read this article.
Last updated: December 14, 2023