What is the next LSD with a market value of 100 billion US dollars?

After the Ethereum Shanghai upgrade, 565,000 ETH flowed into the Liquid Staking agreement. As of May 24, 2023, the total value locked in liquid staking agreements such as Lido Finance and Coinbase exceeded US$18.3 billion.

According to DefiLlama data, Liquid Staking’s TVL has surpassed DeFi borrowing and firmly occupied the second place since the beginning of March with the release of the Ethereum Shanghai upgrade time. It has now surpassed DEX and become the first.

Correspondingly, Liquid Staking Derivatives (liquidity derivatives quality staking track) has become a DeFi field The latest development trend is even considered to be the most anticipated narrative in the encryption industry this year.

So, what exactly are Liquid Staking and Liquid Staking Derivatives (hereinafter referred to as LSD)? What are the pros and cons? What are the future prospects? Let's take a look together.

01
What is Liquidity Staking and LSD?

Starting from the launch of the Ethereum beacon chain in 2020, ETH holders can become a node validator on the beacon chain by pledging 32 ETH and receive additional ETH rewards. After that, ETH staking begins. Already, The upcoming Ethereum Shanghai upgrade will allow users to unlock their previously pledged ETH, gain liquidity and earn income.

Pledge, also known as Staking, means that users lock their assets within a specific period. ETH holders can become a node verification on the beacon chain by pledging 32 ETH. People are part of the staking process, but this model means they miss out on opportunities to trade ETH for profit.

This is similar to a traditional bank deposit. Unless you withdraw the money, the money deposited cannot be used for other purposes at the same time.

However, The development of Liquid Staking allows ETH holders to receive staking rewards while using their ETH as they wish. This ensures that stakers receive staking rewards and the opportunity to use ETH in external transactions, further helping them maximize returns and generate multiple revenue streams.

According to the previous article, due to the locked nature of ETH, Liquid Staking was invented to allow users to earn multiple benefits through liquid staking. However, receiving ETH for pledging ETH requires providing the pledger with a receipt Token. The receipt Token is called Liquid Staked Derivative (LSD).

LSD is a liquidity token, which is equivalent to the substitute of the pledged Token, but its functions are similar to the pledged Token, such as selling, providing liquidity, lending, using as collateral, etc. To earn additional income on top of the staking income you earn.

02
What are the advantages and disadvantages of LSD?

"Mortgage" Tokens generally means storing them on the chain for a period of time to help improve the security of the blockchain network, but the disadvantage is that these Tokens cannot be used when needed, and LSD The emergence of staking tokens allows us to use these pledged tokens in other places in DeFi while still receiving rewards through staking.

It can not only enhance the security and stability of the blockchain network, but also maintain the flexibility of holders to manage their Token assets to encourage more people to pledge their Tokens and participate in DeFi. The world, ultimately benefiting everyone involved, is the greatest advantage of LSD.

But there are advantages and disadvantages, and LSD also has some disadvantages.

A major issue is the possibility of "slashing" , where if a staker's misconduct is detected, even if it is not intentional, they may lose a portion of the staked tokens. Therefore, investors need to consider the risks before deciding to participate in a liquidity staking protocol.

Another issue is the risk of smart contracts. If the smart contracts that handle these derivatives have loopholes or errors and are unfortunately hacked, then all the assets pledged on these contracts and the derivatives may will be permanently lost.

03
The future development of LSD

With the completion of the Shanghai upgrade and the continuous innovation and development of the LSD track, the competitive landscape of LSD will change. As staking capabilities increase, Token holders have more choices and features when choosing a blockchain, such as permissionless verification, slash protection, and tax efficiency, which means higher benefits for stakers Security and flexibility.

This shift also brings new opportunities to the broader DeFi ecosystem. The development of LSD enables more and more users to participate in staking, and liquidity will flow to LSD, thus creating greater liquidity in DeFi protocols that utilize LSD, forming a Matthew effect.

Overall, the future of LSD is bright, with the potential for increased competition and enhanced functionality. As more users participate in staking, the broader DeFi ecosystem will benefit, providing new opportunities for investors and potentially increasing efficiency and innovation in the space.

04
Summary

In general, Liquid Staking is a new generation system that enables users to Earn passive income from their assets. This goes beyond the traditional problem of locking up their funds without being able to use them, and instead provides users with a liquid version of their assets for use on other platforms.

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