Liquid Staking Derivatives (LSD) are one of the hottest topics of 2023. These protocols accept deposited ETH, stake it to secure the network, and distribute staking rewards to LSD holders (minus some fees). This greatly simplifies the staking process for users and allows LSD to be used in other DeFi applications.
The market leader, Lido, owes much of its dominance to “early and ubiquitous presence,” having been able to leverage its network effects to become the “safest” option for users to enter the world of ETH staking.
This article sorts out five LSD projects that may have the greatest potential, exploring how they can compete with the market leader Lido in terms of technology, economics, and user experience, and become market disruptors by providing novel solutions.
1. Prisma
Prisma made a splash with its debut Mirror article, positioning itself as the “end-game in liquidity staking tokens” with the goal of leveraging Curve’s flywheel effect to drive mass adoption for its stablecoin (acUSD). Similar to projects like Gravita and Lybra, Prisma uses Liquity’s model and tweaks it, allowing acUSD to be minted against any of the top five LSDs (Lido’s stETH, Coinbase’s cbETH, Rocket Pool’s rETH, Frax’s frxETH, and Binance’s WBETH), with weights and future integrations currently TBD.
In theory, the desire to hold acUSD will incentivize more users to stake their ETH with liquid staking tokens.
In addition to trading fees, acUSD liquidity providers will also receive CRV, CVX, and PRISMA tokens as well as standard ETH staking rewards
With launches on Curve, Convex, Frax, Conic, and LlamaNodes, Prisma has already secured partnerships with several heavyweight projects, starting off strong.
2.Swell
Swell's swETH LSD has received widespread attention from the community due to its current Voyage incentive program, rising rapidly in the rankings and breaking through $50 million in TVL. Swell promotes itself as being consistent with Etherean values and hopes to make the interaction process easier for new users.
Users can buy ETH directly from their app via Google/Apple Pay, credit card or bank account
Partner integration allows users to earn swETH directly by providing liquidity
3.unshETH
The goal of unshETH is to incentivize healthy competition in the LSD space and provide a diversified LSD consisting of a basket of base LSDs. The weights of these LSDs are balanced through governance, and currently include 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 weights of LSDs based on unshETH, each governance decision will affect the platform's user behavior.
In addition to the standard staking rewards from a basket of underlying LSD, unshETH can also earn additional benefits through rebalancing fees
Building on LayerZero means unshETH can be transferred natively across chains, enabling new liquidity strategies
Being included in unshETH will bring new buying pressure to emerging LSD projects, making unshETH a potential launch partner
4. Origin Ether
By combining an automated yield generation strategy with native Ethereum staking rewards, Origin Ether can provide generous rewards to its depositors. Much like the other LSDs mentioned, OETH is backed 1:1 with deposited ETH, which is distributed across various DeFi platforms to earn yield. Currently the yield comes from (in order of weight):
ETH-OETH Convex Liquidity Pool
Rocket Pool’s rETH
Frax's sfrxETH
Lido’s stETH
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’s annual interest rate has been around 9%, twice as high as some of its competitors.
Origin’s automatic profit strategy provides users with the greatest convenience. They no longer need to shop around to find out who has the highest profit.
5. Diva
Diva hopes to combine the composability of liquidity staking with the decentralization brought by distributed verification technology. In short, DVT allows the distribution of validator private keys to be verified through trust-minimized key sharing. In practice, users combine the composability of LSD with most of the decentralized advantages of running their own ETH node, without the minimum staking threshold.