Written by Yuuki, LD Capital
After repeated hype, the market has a high degree of understanding and corresponding attention to the LSD track. The certainty of the future development of the LSD track is beyond doubt, but the mainstream targets face weak marginal changes. The high certainty makes it almost impossible for the market to provide high-odds trading opportunities with effective expectation gaps. At this time, due to the continuous expansion of the scale of the underlying LST interest-bearing asset, the new LSDFi protocol built on this asset will become the alpha of the entire LSD track.
The LSDFi protocols introduced in this article are mainly concentrated in two categories. The first category is the protocol that uses LST as collateral CDP to mint USD stablecoins, and the second category is the protocol that uses LST as collateral CDP to mint WrapETH. The reason for focusing on these two types of products is that as the ETH pledge rate continues to rise, the scale of ETH continues to decrease, and the scale of LST continues to expand; based on the point of improving the efficiency of fund use, the market demand for lending protocols with LST as collateral will inevitably continue to expand, especially when the market recovers and the risk appetite of funds increases.
There are usually two types of lending protocols. One is the deposit-taking and lending model (such as AAVE and Compound), but this model requires user deposits on the funding side. The network effect and brand effect built by the first-mover advantage have obvious moats, making it difficult for latecomers to compete with it. At the same time, this model also faces the problem of high lending rates. The other is the CDP minting model (such as Dai). This model does not have user fund custody on the funding side. Due to the minting rights of the protocol itself, users can enjoy extremely low borrowing rates, and the protocol cost is converted from bilateral interest rate subsidies to liquidity expenditures for collateral certificates. Compared with deposit-taking and lending, this model is more suitable for the construction of lending protocols based on LST, an interest-bearing asset, especially leverage based on interest rate exposure.
Source: LD Capital
The LSDFi listed below are all early stage projects, and the product planning, functional implementation and economic model of most targets need to be continuously tracked.
Category 1: CDP USD stablecoin protocol with LST as collateral 1. Prisma Finance: Curve ecosystem support, Liquity Fork
product description:
The main function of Prisma Finance is to use LST assets as collateral, over-collateralize and mint the US dollar stablecoin acUSD, and launch the first batch of wstETH, cbETH, rETH, sfrxETH and WBETH as collateral. Currently, it has received support from a number of Defi OGs, including the founder of Curve, the founder of Convex, FRAX Finance, Coingecko, and OKX Ventures; according to the FRAX [FIP-227] proposal, FRAX Finance invested $100,000 in Prisma Finance at a valuation of $30 million, and the token distribution will be unlocked linearly within 12 months.
Features:
Like most overcollateralized stablecoin protocols, the core demand that Prisma Finance solves is the improvement of capital efficiency. Users can leverage by minting stablecoins through CDP while retaining the price volatility and yield exposure of LST. In this link, the liquidity of acUSD is crucial, which is the main protocol cost of the CDP protocol and also the biggest advantage of Prisma Finance.
Economic model:
In terms of the token economic model, Prisma Finance introduces the ve model. veToken will obtain the governance rights of the protocol to determine the distribution of token emissions in different lending pools, protocol fees, pool parameters and LP mining yields. It aims to attract LSD protocols (asset issuers) and LPs to lock protocol tokens, forming an interest binding while reducing secondary market selling pressure.
2. Raft: User-friendly, censorship-resistant, real-name team, and liquidity built on the Balancer ecosystem
product description:
Raft is an immutable, decentralized lending protocol that allows users to borrow the US dollar stablecoin R with LST (currently supports stETH) as collateral; it maintains the censorship resistance of the protocol through immutable smart contracts and decentralized front-ends. Raft was incubated by TempusFinance. The co-founder of Raft once worked at the ETH Foundation, and the team members also developed Nostrafinance (the first lending product on StarkNet). Raft has received support from institutions such as Lemniscap, Wintermute, and GSR. At present, the main product functions have been realized, and the TVL reached 30 million US dollars in 3 days after its launch (without token incentives).
Source: https://www.raft.fi/, LD Capital
Features:
The product features are flash exchange and one-step leverage functions: the principle of flash exchange is similar to AAVE's flash loan, the difference is that R comes from the protocol minting; and based on the flash exchange function, a one-step leverage function can be developed, that is, users deposit stETH→flash exchange R→exchange stETH with R→deposit additional stETH→generate R→repay R flash exchange debt. Several steps are combined in one transaction, which improves the user experience while greatly saving transaction Gas; users can obtain up to 11 times leverage.
Source: https://www.raft.fi/, LD Capital
Economic model: Not published
3. Gravita Protocol: CDP stablecoin protocol with Liquity Fork and LST as collateral
product description:
Gravita Protocol is the first stablecoin protocol to adopt the Liquity fork to support LST assets. It achieved a TVL of US$20 million within one month of its launch without token incentives. It supports WETH, stETH, rETH and bLUSD as collateral. Its stablecoin GRAI has good liquidity depth in Curve, Bunni and UniV3.
Features:
Compared to Liquity, Gravita not only supports LST assets but also has a lower borrowing interest rate. Users who borrow money in Gravita need to pay a one-time borrowing fee of 0.5%. If the loan is repaid within 6 months, Gravita will refund the borrowing fee according to the loan period. Users will be charged at least 1 week of borrowing fees.
Source: Deflama, LD Capital
Economic model: Not published
4. PSY: 0 borrowing fee, Arbitrum ecosystem, ve(3,3), Liquidity Fork
product description:
PSY supports a variety of LST and its LP tokens as collateral to mint USD stablecoins (SLSD). The product structure is the same as Liquity and will be launched on the Arbitrum chain in the future.
Features:
PSY will provide 0 interest rate loans and introduce the ve(3,3) token model. The specific details need to be tracked continuously.
Category 2: CDP WrapETH protocol with LST as collateral 5. ZeroLiquid: 0 borrowing rate, no liquidation, automatic debt repayment with interest
product description:
ZeroLiquid is currently in the testnet stage, allowing users to pledge LST to mint ZETH (when users deposit ETH, ZeroLiquid will convert it into LST, with an initial LTV of 50%). ZETH is a loan certificate pegged to ETH. Since it has the same price fluctuation as ETH, ZeroLiquid can achieve zero liquidation, hedge against price volatility risks, and take long ETH pledge interest rate exposure, without considering the risks of the underlying LST assets coming from the LSD protocol (hacker attacks, large amounts of capital confiscations, etc.). ZeroLiquid initially plans to charge 8% of the LST yield as protocol income, and the subsequent ratio can be adjusted through governance.
Source:zeroliquid.gitbook.io,LD Capital
The current problem of ZeroLiquid is how to anchor low LTV, high protocol pumping and ZETH; LTV and protocol pumping can be adjusted through governance, and the main problem at present is how to anchor ZETH. In ZeroLiquid's economic model, the liquidity incentive cost accounts for 20% (low) of the total token volume, which requires it to have a good redemption mechanism to maintain the stability of the ZETH/ETH exchange rate.
Currently, ZeroLiquid provides liquidity for discount arbitrage in the secondary market through the Steamer module. The liquidity of the Steamer module comes from the user's excess collateral and the income generated by the collateral. This design has a great impact on the LTV of the protocol. We will pay attention to whether it will improve in the future.
Source:zeroliquid.gitbook.io,LD Capital
Economic model:
$ZERO tokens were launched on the Uniswap platform in the form of self-raised funds on March 19, with a total of 30.5 million tokens (the initial total was 100 million, and the community proposal destroyed 69.42%), of which 6 million were used to provide initial liquidity, 13.7 million belonged to the community, 1 million belonged to the treasury, and 700,000 belonged to core contributors. Currently, there are 6.9 million tokens in circulation in the secondary market, and the rest will be gradually vested within 3 months to 3 years. $ZERO has the right to dividends while enjoying governance rights, and single-coin staking can capture protocol income.
Source: zeroliquid.gitbook.io, LD Capital 6, Ion Protocol: 0 borrowing rate, support for EigenLayer re-staking certificates
product description:
Ion Protocol supports a variety of collateral, including LSTs, LST LP Positions, Staked LST LP Positions, EigenLayer Validator/LST/LST LP Restaking Positions and LST Index Products. At the same time, Ion Protocol intends to customize the risk model of this protocol based on the inherent risk-return structure of different collaterals, and guide users to deposit by adjusting the LTV or borrowing interest rates of different collaterals, while ensuring the over-collateralization and anchoring of allETH while maximizing capital efficiency.
Source: ionprotocol.medium, LD Capital
Economic model: Not released
