Written by: 563
Compiled by: Shenchao TechFlow
In 2023, Liquidity Collateralized Derivatives (LSD) have become one of the hottest topics. These protocols receive deposited ETH, stake it to secure the network, and pass on staking rewards to users who hold their LSD (minus some fees). This greatly simplifies the staking process for users while also allowing them to use their LSD in DeFi.
Today we take a look at some promising LSD project parties who compete directly with market leader Lido in terms of technology, affordability and simplicity.
Lido’s leading position is mainly due to their first mover advantage. And their ability to leverage their network effect to become the “safest” option for users to enter the world of ETH staking.
So how do other protocols compete?
Market participants tend to act in their own best interests, even if some purists may not want to believe it. To topple the king (or weaken its dominance), these new challengers must offer something demonstrably better than Lido.
In our view, these advantages may include:
Higher rate of return;
Easier to get started;
More composability and/or security;
Innovation.
In this article, we’ll look at five early competitors looking to make a name for themselves by offering novel solutions in the LSD space.
1.Prisma
Prisma made a splash with their debut Mirror article, calling themselves the “end-game in liquidity staking tokens”, with Prisma aiming to leverage the Curve flywheel to drive widespread adoption of their stablecoin (acUSD). Similar to projects like Gravita and Lybra, Prisma uses Liquity’s model and tweaks it so that acUSD can be minted against the first five LSDs (Lido’s stETH, Coinbase’s cbETH, Rocket Pool’s rETH, Frax’s frxETH, and Binance’s WBETH). Weights and future integrations are currently undetermined.
In theory, holding acUSD will incentivize more users to stake their ETH with liquid staking tokens.
In addition to trading fees, acUSD liquidity providers will receive CRV, CVX, and PRISMA tokens, as well as their standard ETH staking rewards;
Prisma will have key integrations with Curve, Convex, Frax, Conic, and LlamaNodes from the outset.
2.Swell
Due to its current Voyage incentive program, Swell's swETH LSD has received widespread attention from the community and has exceeded $50 million in total locked value (TVL). Swell positions itself as a platform that is consistent with Ethereum's values and hopes to provide a simpler onboarding process for new users.
Users can buy ETH directly through Google/Apple Pay, credit card or bank account.
Partner integrations allow users to earn swETH yields directly by providing liquidity.
3.unshETH
The goal of unshETH is to incentivize healthy competition in the LSD space by offering a diverse LSD consisting of a basket of underlying LSDs. The weight of the basket is balanced through governance and currently includes Lido's wstETH, RocketPool's rETH, Coinbase's cbETH, Frax's sfrxETH, Anker's ankrETH, and Swell's swETH. Since arbitrageurs are incentivized to balance the weight of unshETH's underlying LSD, economic activity will certainly follow each governance decision.
In addition to standard staking rewards from the underlying LSD basket, unshETH also earns additional benefits through rebalancing fees.
Being built on LayerZero means that unshETH can be transferred across different chains, opening up the possibility for entirely new liquidity strategies.
Being included in unshETH creates new buying pressure on emerging LSD projects, making unshETH an obvious potential partner.
4.Origin Ether
By combining an automated yield generation strategy with Ethereum staking rewards, Origin Ether can offer attractive rewards to its depositors. Similar to the other mentioned LSDs, Origin Ether backs deposited ETH at a 1:1 ratio and seeks yield by diversifying investments in the DeFi space. Currently, yields come from the following (in order of weight):
ETH-OETH Convex liquidity pool;
Rocket Pool’s rETH;
sfrxETH from Frax;
stETH by Lido.
The high returns have enabled Origin Ether to accumulate approximately $35 million in TVL in just one month.
Over the past 30 days, Origin Ether has generated an annualized return of about 9%, double that of some competitors.
Origin’s automated strategies free users from the confusion of searching for the most lucrative returns.
5.Diva
Diva hopes to combine the composability of liquidity staking with the decentralization brought by distributed verification technology. In short, DVT enables verifiable distribution of validator private keys through trusted key sharing. In practice, users can combine the composability of LSD with most of the decentralized benefits of running their own ETH node without the minimum staking.
DVT is a new technology that brings further decentralization to ETH staking.
DVT allows for node redundancy and better uptime, helping to stabilize rewards.
The story is far from over
Let’s take a step back and put it in perspective - as the merger is complete, ETH staking is still in its infancy. Compared to other Proof of Stake (PoS) layer 1 networks, the percentage of ETH used for staking is still less than 20%.
If we assume that ETH staking will eventually align with the PoS majority, then there is plenty of time for staking protocols to carve out their own niche in the market. We have showcased a few projects here that offer their own unique liquid staking derivatives, whether it is easier onboarding, new technology, new use cases, or higher annualized yields; there is a lot more to get excited about in LSDfi.