A really interesting part of DeFi is Liquid Staking Derivatives (LSDfi). It’s a cool way of using staked assets in a new and different way. In this article, we’ll talk about some of the top LSDfi projects that are changing how things work and bringing in new ideas. Let’s take a look at the top LSDfi projects in the 2024 article.
What are liquid staking derivatives (LSDs)?
Liquid staking derivatives, or LSDs, are like special tokens that show you have staked cryptocurrencies. These tokens let you use the value of your staked coins easily, instead of keeping them stuck in a staking contract. So, it’s like having your staked coins both locked in and free to use at the same time.
What are LSDfi projects?
LSDfi includes a range of protocols based on Liquid Staking Derivatives (LSD). These protocols cover a variety of projects, from traditional DEXs and lending platforms to more advanced ones that use unique properties of Liquid Staking Tokens (LST).
As more and more people start using LSD, these protocols become crucial in the world of DeFi, forming the base for the entire DeFi ecosystem. Meanwhile, projects that build intricate products on top of LSD create the next layer of innovation.
LSD has become the most significant category in Total Value Locked (TVL), with Lido standing out as one of the major projects in this space. Beyond that, LSD has become a standard in any Proof-of-Stake (PoS) system and is a significant trend in DeFi. It offers a steady, low-risk way to earn passive income and helps maintain the blockchain.
In other words, LSD plays a vital role in fueling the growth of the entire DeFi ecosystem. LSDfi acts as a logical extension of LSD, contributing to the overall economy by generating substantial income and making interactions with LSD projects more straightforward. To illustrate, consider a project within LSDfi that allows users to stake their tokens and earn passive income while actively participating in the evolving DeFi landscape.
Top LSDfi Coins To Watch Out For in 2024
1. Stader (SD)
Stader is creating important tools for people who want to stake their cryptocurrencies on different Proof-of-Stake (PoS) networks. This includes regular users, cryptocurrency exchanges, and companies that hold digital assets for others. Stader is making smart contracts that are like building blocks, so other companies can use them to create their own special solutions.
Shortly, Stader is making these smart contracts work on various blockchain networks such as Terra, Solana, Ethereum, Near, Avalanche, Fantom, and more. They are also working on a system where people can earn rewards through different activities like farming, staking, launching new projects, gaming, and more.
In the long term, Stader wants to open up their platform so that other companies can build their own staking applications using Stader’s tools. It’s like they’re inviting others to join in and create even more ways for people to use and benefit from staking.
2. Rocket Pool (RPL)
Rocket Pool is a unique decentralized Ethereum staking pool offering rewards of up to 4.33% APR for staking Ethereum 2.0. Users can either join the pool through its decentralized node operator network or run their own nodes with just 16 ETH.
Opting for the latter allows them to earn commissions from staking ETH and receive extra RPL rewards, potentially reaching 6.36% APR for ETH, while benefiting from a liquid staking approach that avoids taxable events.
The platform introduces smart nodes, spreading losses from poorly performing nodes across the network to reduce individual user risk. Emphasizing transparency and security, Rocket Pool employs open-source, audited smart contracts for fully non-custodial staking.
Founded in 2016 by David Rugendyke, the project aims to enhance Ethereum’s decentralization and security, addressing challenges such as barriers to entry and loss of liquidity associated with staking on the network. Rocket Pool introduces three native tokens, including RPL, to contribute to a more efficient and decentralized staking ecosystem on Ethereum.
3. Pendle (PENDLE)
Pendle is a protocol that allows the tokenization and trading of future yield. They’ve developed a unique Automated Market Maker (AMM) that works with assets having time decay. This innovation from Pendle provides users with greater control over future yield by offering options and opportunities for its use. In simple terms, it’s a system that helps people manage and trade future earnings in a way that suits them best.
Yield, like token prices, can change a lot. It usually goes up when markets are doing well (bull markets) and down when markets are not doing so well (bear markets). There are also smaller factors that make the yield go up or down within these general trends. With Pendle, you can make the most of your yield: boost your exposure to yield when markets are good and protect yourself from yield decreases during tough market times. It’s like a way to adjust and make the most of your earnings depending on how the overall market is behaving.
The Flashstake protocol is a new financial system that lets users instantly earn rewards on their deposited assets by locking them up for a specific period. This is possible because of Flash Strategies, which use other protocols like AAVE and Yearn to generate rewards.
When you put your tokens into the Flashstake protocol, they quickly go to the Flash Strategy and get deposited into another protocol like AAVE or Yearn to start earning rewards. The Flash Protocol and Flash Strategy decide how many fTokens should be created and given to the person who locked up their tokens. These fTokens represent a share of the rewards earned by the Flash Strategy.
For instance, if the rewards pool has $500, and someone holds 100% of the fTokens for that strategy, they can trade in their fTokens to get the entire $500 in rewards. It’s like a way to quickly earn rewards on your assets without waiting.
The Frax Protocol stands out as the initial fractional-algorithmic stablecoin system, operating on Ethereum with potential cross-chain expansions. It is open-source, permissionless, and entirely on-chain. The ultimate aim is to offer a decentralized, highly scalable, algorithmic currency, different from fixed-supply digital assets like BTC. Key features of the Frax protocol include:
- Fractional-Algorithmic Nature: Frax is a distinct stablecoin, partly backed by collateral and partly algorithmic. The ratio of collateralized and algorithmic components adjusts based on the market price of the FRAX stablecoin. If FRAX is above $1, the protocol lowers the collateral ratio, and if it’s below $1, the protocol raises the collateral ratio.
- Decentralized & Governance-minimized: The protocol is community-governed, following a highly autonomous, algorithmic approach without active management.
- Fully On-chain Oracles: Frax v1 relies on Uniswap and Chainlink oracles for accurate pricing data.
- Two Tokens: FRAX is the stablecoin aiming for a close value to $1. Frax Shares (FXS) is the governance token, accumulating fees, seigniorage revenue, and excess collateral value.
Before Frax, stablecoins fell into categories like fiat-collateralized, overcollateralized with cryptocurrency, and algorithmic with no collateral. Frax pioneers a new class as the first decentralized stablecoin with fractional-algorithmic characteristics, marking the emergence of a unique and fourth stablecoin category.
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