BackThe Top LSD Tokens to Watch Out For in 2023
Liquid derives their value from the underlying staked tokens, which are locked when staked on a Proof-of-Stake (PoS) network, hence the name ‘Liquid Staking derivatives (LSDs) tokens
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New Delhi (India), May 30: Liquid staking derivatives (LSDs) have recently emerged as the hottest new crypto trend in the decentralized finance (DeFi) industry, enabling investors to earn staking rewards while still maintaining the flexibility to use their staked assets for other DeFi activities like trading, yield farming, lending and borrowing.
With the liquid staking revolution, token holders can lock up their tokens and receive a receipt token, called a Liquid Staking Derivative ( or Liquid Staking Token), which shows evidence of their ownership of the staked tokens and any rewards accrued to those tokens.
LSDs – A New Frontier for Staking Rewards
Liquid derives their value from the underlying staked tokens, which are locked when staked on a Proof-of-Stake (PoS) network, hence the name ‘Liquid Staking derivatives (LSDs) tokens'.
LSDs are issued by LSD protocols, enabling stakers to augment potential returns by unlocking liquidity for their staked assets. By pooling tokens in a staking pool through a third-party liquid staking service provider, users can delegate their crypto to a validator node on a delegated PoS (DPoS) network.
What Are The Mechanisms of LSDs?
Basically, LSDs deploy two mechanisms in the market:
- Rebasable Liquid Staking Derivatives
In the case of rebasable LSDs, the value of the liquid and usable token (LSD) representing the staked asset and the staked asset will remain at a 1:1 ratio. This means that for every 1 ETH that’s staked on liquid staking protocols like Lido, users receive 1 stETH.
The balance of the liquid staking token is estimated daily when the oracle reveals the balance for the staked token.
- Exchange Rate-Based Liquid Staking Derivatives
In this case, the value of the liquid staking token fluctuates according to the accrued rewards and fees, but the balance remains the same. Depending on the LSD protocol, the exchange rate between the receipt token and the underlying asset changes daily depending on the rewards earned by the protocol’s Beacon Chain node operators.
What Are The LSD Projects to Look Out For?
Since the Ethereum upgrade, the native tokens supporting LSD projects have been on the run. The LSD tokens associated with these projects have yielded higher percentage gains, at least 2x of Ethereum in 2023.
Liquid staking has quickly become an attractive investment opportunity for those looking to maximize the profits on their staked assets. There are numerous liquid staking solutions on the market, each with its own unique model and product. Some of the best LSD projects in 2023 are:
- Frax Finance
Frax finance is the first fractional-algorithmic stablecoin system that aims to be scalable, decentralized and algorithmic money.
On Frax, users are allowed to stake ETH and earn staking rewards in the form of sfrxETH, which is redeemable for Frax ether token (frxETH) at a 1:1 ratio. The frxETH token can be traded or staked on Curve’s liquidity pools – where stakers can earn over 6 to 10% APY.
These relatively high staking returns are withdrawn in CRV, FRAX, and FXS, based on the liquidity staking pool.
The Frax protocol employs a dual token system – the FRAX stablecoin and a governance token, Frax Share (FXS).
- Tenet Protocol
Tenet deploys the Diversified Proof of Stake (DiPoS) mechanism to support staking with LSD assets from other chains, like ETH, ATOM, BNB, SOL, and ADA.
$TENET is used for payments within the platform. To use the Tenet network, you need the native token. When you stake $TENET with a TENET Staking Provider, you will receive an LSD of TENET known as tTENET.
tTenet also needs to be staked with the corresponding Staking Provider to receive validation rewards from securing the blockchain.
LSDs such as stETH and cbETH can be used to join Tenet validation and earn network transaction fees, while still earning the Ethereum staking yield that the LSDs offer. Unlike other protocols, Tenet offers a zero management fee.
- Lido Finance
Lido has become one of the most popular platforms for liquid staking, reaching over $11.95 billion in staked assets. Its market cap is approximately $2 billion with a total circulation supply of $1 billion.
Upon staking Ethereum on Lido, users can earn the LSD token – stETH. With Lido, stakers will receive a high annual percentage rate (APR) for staking Ethereum (4.8%), Solana (6.6%) and Terra (8.1%).
Lido charges a fee of 10% which is evenly distributed to both the node operator and the DAO. Since the beginning of January 2023, $LDO has done over 300%. Despite the charge fee, investors are continuously attracted by its potential for higher returns.
- StakeWise
StakeWise is a liquid Ethereum 2.0 staking service that aims to make staking as seamless and profitable as possible.
sETH2 (staking ETH) and rETH2 (reward ETH) tokens are issued to stakers in the pool. Built on the ERC-20 network, these tokens can be transferred or exchanged for other tokens to exit from staking or utilize yield opportunities in DeFi protocols.
sETH2 and rETH2 token holders will be able to exchange their tokens for ETH from the StakeWise Pool by burning their tokens. Token holders will be able to exchange sETH2 and rETH2 for 1 ETH each at a 1:1 ratio.
- Ankr
Ankr is the fastest growing decentralized web 3 protocol. It has a market cap of over $250 million and a fixed total supply of 10 billion ANKR tokens.
$ANKR is the backbone of the Ankr protocol. The utility token use cases include governance, payment and for staking purposes. To earn a share of the rewards, token holders can lock up their assets with Ankr network full nodes.
ANKR token will be used for the operations of the Ankr network for providers, users, and stakers.
Final Thoughts
Thanks to LSD protocols, there's been an increase in monetary returns for DeFi and staking has become more flexible and accessible to a wider range of users who can now benefit from both staking rewards and liquidity.
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