Thread by @Dynamo_Patrick

Imagine a new financial primitive that’s yield bearing, deflationary, and secures the 2nd largest blockchain.

That’s liquid staked ETH.

Master thread on liquid staking, LSDs (no, not that kind), 10 LSDFi protocols, and how to research new protocols in this category.

First, some important terminology: Liquid Staking, LSD, and LSDFi.

Liquid Staking is when you stake a token, like ETH, through an intermediary. This has the benefits of allowing you to stake with less than the 32 ETH minimum and allowing you to sell your staked ETH at any time.

LSDs, sometimes called LSTs, are the tokens that you receive for liquid staking.

For example, @LidoFinance issues stETH to users that stake ETH through them. This stETH can be redeemed for ETH with a delay or sold.

LSD=Liquid Staking Derivative and LST=Liquid Staking Token.

The growth of Liquid Staking is a defining story in DeFi from the past year.

One year ago, LSDs had $9.1b in TVL compared to $32.0b in DEXes. At the start of 2023, LSDs had $8.7b in TVL, compared to $14.8b in DEXes.

Today LSDs have $19.4b in TVL, more than the $16.6b in DEXes.

That’s Liquid Staking. And it’s no surprise that liquid staking protocols like Rocket Pool and Lido Finance has been strong performers.

But what’s LSDFi?

LSDFi stands for Liquid Staking Derivative Finance. It refers to DeFi protocols that incorporate LSDs like stETH or rETH.

LSDFi protocols broadly incorporate LSDs in a few ways:

-Stablecoins collateralized by LSDs
-Mint synthetic ETH with LSD collateral
-LSD yield tokenization
-LSD yield optimization
-Lock LSDs to receive yield up front

Let’s look at 10 of the leading LSDFi protocols right now.

@pendle_fi separates out the yield portion of a yield bearing asset.

Yield bearing assets’ value is split between the underlying asset and that asset’s yield.

With Pendle, you can invest in the underlying asset at a discount or invest in only the yield and earn a higher APR.

@LybraFinanceLSD is an interest-bearing stablecoin, backed by LSDs.

Deposit ETH or stETH to mint eUSD. eUSD then earns yield, simply by sitting in your wallet.

How does it do this?

ETH staking rewards from depositors are swapped for eUSD and distributed back to eUSD holders.

@LybraFinanceLSD @OriginDeFi optimizes yield on liquid staked ETH.

Users deposit stETH, rETH or frxETH to mint OETH.

That OETH then earns yield through a combination of liquidity provision, staking, and reward tokens.

https://twitter.com/1290110005882916864/status/1658503224356139009

@unsheth_xyz is another LSD yield optimizer.

unshETH is a basket of ETH LSDs that earns yield both from staking and from people leveraging unshETH liquidity to swap between those LSDs.

Stake unshETH to earn additional USH token incentives.

@unsheth_xyz Note that unshETH was recently hacked, but user funds weren’t affected.

Here's a good recap from their AMA about the situation:

https://twitter.com/1578412239811268608/status/1664386251162783745

@gravitaprotocol allows you to borrow GRAI against your liquid staked ETH with a maximum fee of 0.5% and no interest.

Notably, Gravita also continues to allow you to earn staking rewards on your underlying collateral.

@catinaboxfi lets you deposit stETH and borrow synthetic boxETH.

The deposited stETH continues to earn yield, plus additional yield generated by debt in the system, while the borrower can unlock additional value by utilizing boxETH.

Yield is dynamic, varying based on your LTV.

@Flashstake allows you to claim ETH yield upfront, by locking your ETH, rETH, or stETH for up to 90 days.

You can unlock your principal by paying back a portion of your upfront yield.

Since crypto yields are highly volatile, this also allows you to lock in a fixed yield today.

@asymetrix_eth incorporates elements of gamblefi into liquid staking.

Yield from stETH on the platform is distributed to a random winner periodically. Even if you don’t win, you still earn over 20% APR from $ASX token rewards.

@raft_fi also features a stablecoin that’s overcollateralized by stETH.

Deposit your stETH, continue earning yield, and mint the $R stablecoin for a 0.01% fee.

Raft stands out by encouraging independent front-ends and by their plans to introduce one-step 11X leverage on stETH.

@ZeroLiquid_xyz is an upcoming LSD lending protocol.

They have a few promising features lined up to differentiate themselves.

With Zero Liquid, you’ll be able to use a variety of LSDs as collateral to mint synthetic ETH. They also plan to support liquid staked SOL and MATIC.

And new LSDFi protocols are launching everyday. If you want to make the most of this narrative, you need to be able to research them yourself.

Here are a few strategies to find LSDFi projects early, before they take off.

Use DefiLlama’s Token Usage page to track which protocols have a lot of stETH, rETH, and other LSDs deposited.

https://twitter.com/1377775070156840960/status/1663569290811830272

DeFi Mochi created this Dune dashboard to track LSD usage across a variety of LSDFi projects:

https://twitter.com/1575414573019979776/status/1665754408284454915

This thread lays out a ton of great builders and writers you can follow to stay up-to-date on LSDFi:

https://twitter.com/1452603543093796871/status/1663440560026435584

If you found this thread helpful, you’ll also enjoy my weekly newsletter, where I share the latest trends and tools in crypto. Subscribe at dynamodefi.com

Don't have time to read all this now? Here's the first tweet in this thread to bookmark so you can go back and reference it later.

https://twitter.com/1377775070156840960/status/1666116070397075458