What is LSDfi? The Convergence of Liquid Staking and DeFi

In the world of decentralized finance (DeFi), a new and promising narrative has emerged, known as LSDfi. LSDfi refers to a set of protocols based on Liquid Staking Derivatives (LSD) that encompass various aspects of the DeFi ecosystem.

These protocols include both classic DeFi components like decentralized exchanges (DEXs) and lending platforms, as well as more complex projects that leverage the unique properties of LSD.

Liquid Staking projects have laid the foundation for LSDfi within DeFi. These projects serve as the first layer, upon which more sophisticated and innovative products are built. LSD, with its growing popularity, has become the primary category in terms of Total Value Locked (TVL), with projects like Lido leading the way. Consequently, LSD is now playing a crucial role in driving the overall growth of the DeFi ecosystem.

The integration of DeFi and LSD is an important trend that has given rise to LSDfi. As this trend gains momentum, LSD is emerging as one of the primary forces within DeFi. We can expect to see the emergence of specialized DEXs or aggregators catering specifically to LSD. Notable LSD-focused protocols include LSDxfinance, similar to Curve, and catinaboxfi, a lending protocol.

One significant aspect of LSDfi is the concept of an LSD Basket. With numerous liquid staking solutions available for Ethereum (ETH), protocols exist to combine these solutions into one basket, creating an index. This approach allows for risk diversification and makes investing in LSD more convenient. Notable examples of LSD Baskets include dsETH and icETH introduced by Index Coop, unshETH launched by unshETH.xyz, and safETH backed by the top three LSTs offered by asymmetryfin.

Furthermore, LSD’s inherent ability to generate consistent income opens up opportunities for various yield strategies. Protocols like AcidDAO and parallaxfin enable users to invest in diverse baskets derived from original LSD and implement different strategies. Pendle.fi offers a unique approach by providing a platform for purchasing futures, allowing users to buy ETH at a discount and receive it later, all while it’s invested in designated LSTs. Asymmetric yield distribution is also explored by protocols like asymetrix_eth, which resembles a lottery system where a few winners share all the staking rewards for a period.

Additionally, LSD’s role in stablecoins is gaining traction. Utilizing LSD for over-collateralized stablecoins makes them yield-bearing, as LSDs consistently generate income from staking while being backed by ETH. Examples of stablecoins backed by LSD include eUSD by Lybra Finance, aUSD by agility_lsd, and R by raft_fi.

LSD has become a standard within any Proof-of-Stake (PoS) ecosystem and is already one of the main trends in DeFi. LSDs provide a consistent, low-risk source of passive income and contribute to maintaining the blockchain. LSDfi serves as a logical extension of LSD, creating an entire economy that generates substantial income while simplifying interactions with LSD projects.

The LSDfi sector will continue to evolve, leading to increasingly complex and unique projects. The future holds exciting developments for LSDfi, and we eagerly anticipate its progression. While the projects mentioned above represent some of the most intriguing ones, there may be others worth exploring. Recommendations from the community are always welcomed as LSDfi continues to push the boundaries of DeFi innovation.

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