Liquid Staking Derivatives(LSD): Driving DeFi Growth From Lockup to Liquidity

Kairon Labs
4 min readJul 7, 2023

In the ever-evolving world of decentralized finance (DeFi), innovation continues to shape the landscape of financial opportunities. The advent of Liquid Staking Derivatives (LSD) has emerged as a game-changing concept, facilitating rapid growth and ushering in a new title era of accessibility and security in the DeFi industry. Following the groundbreaking Apr/23 Shapella Upgrade, LSD has witnessed exponential growth, poised to revolutionize the DeFi space, akin to the impact of stablecoins during the 2020 DeFi boom.

In a simpler way LSD is freeing liquidity locked into a proof-of-stake system that is otherwise unusable.

ESTABLISHING DOMINANCE IN DEFI:

Since its introduction, Liquid Staking Protocols have gained significant traction, capturing over 40% of the DeFi market share. Notably, two major protocols, Lido and Rocketpool, have solidified their position, accounting for 34% of this market share as of June. Their success can be attributed to offering high-security standards, stable yields, and the elimination of fixed staking amounts (e.g., 32 ETH requirement). With the Shapella Upgrade removing withdrawal limitations, the potential for LSD to continue attracting users and driving rapid growth in Total Value Locked (TVL) within DeFi is significantly enhanced.

LSD OR LIQUID STAKING DERIVATIVES CHART BY KAIRON LABS

THE ENCHANTING APPEAL OF LIQUID STAKING:

LSD has been an alluring prospect for investors, primarily due to its robust security features, promising stable yields, and the newfound freedom for stakers to participate without conforming to rigid minimum token requirements. This flexibility widens the potential user base, attracting both seasoned and new participants seeking secure and rewarding opportunities within DeFi. By allowing investors to retain exposure to the underlying asset while enjoying the benefits of staking rewards, LSD has emerged as a compelling option for those seeking to optimize their capital deployment in the DeFi ecosystem.

EXPERIENCING EXPLOSIVE GROWTH:

The native tokens of leading Liquid Staking Protocols, LDO and RPL, have witnessed remarkable YTD price growth, doubling in value despite experiencing occasional bouts of volatility. This surge in value has been accompanied by a notable uptrend in trading volume and liquidity metrics, highlighting the growing interest and confidence in these tokens among market participants. Such impressive performance underscores the promising potential of Liquid Staking Derivatives to not only drive DeFi growth but also generate attractive returns for early adopters.

LDO (LIDO) GROWTH IN 2023 BY DEFILLAMA

SSV: AN EVOLUTIONARY DERIVATIVE PRODUCT:

Amidst the rise of staking services, the introduction of Staking Service Validators (SSV) has further propelled the appeal of liquid staking derivatives. Spearheaded by Distributed Validator Technology (DVT), SSV enables multiple validators to collaboratively run a single node, allowing users with insufficient tokens to meet the minimum staking requirement to participate as validators. This innovative approach significantly reduces the capital required for validating, thereby expanding the user base and democratizing access to staking opportunities. Similar to LDO and RPL, SSV experienced impressive price action earlier this year, although faced some challenges with late introduction and demand issues that have since been addressed.

QUOTE FROM A KAIRON LABS TRADER:

Liquid staking enables users to unlock the potential value of their staked assets by converting them into liquidity. This allows users to participate in other DeFi protocols, engaging in activities such as borrowing and trading, thereby increasing overall liquidity in the DeFi ecosystem.

As LSD continues to develop, the DeFi space is expected to further evolve and mature.

— PATRICK LI — SENIOR TRADER AT KAIRON LABS

SUMMARY:

The rise of Liquid Staking Derivatives (LSD) has undoubtedly left a profound impact on the DeFi industry, presenting new opportunities for investors and stakers alike. With protocols like Lido and Rocketpool leading the charge, LSD has unlocked the power of staked assets, driving rapid growth, and attracting a broad audience to the DeFi ecosystem. Moreover, the introduction of Staking Service Validators (SSV) has further enriched the landscape, enabling a larger user base to participate in staking activities. As the DeFi space continues to evolve, the transformative potential of LSD remains undeniable, and investors stand to benefit from the burgeoning opportunities offered by this revolutionary financial instrument.

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