It all started when Ethereum switched from POW to POS. After switching to POS, Ethereum actually generated more than 5% interest every year because of the need to distribute income to validators. It was these interests that brought new opportunities to the Defi market and made entrepreneurs eager to try.

First, protocols like Lido solved the pledge liquidity problem and issued the corresponding token LST, allowing the financial power contained in the pledged Ethereum to return to the market. Then, another batch of protocols used LSD as the underlying layer and issued higher-level financial derivatives, including stablecoins, creating a new track, LSDFi.

We have always regarded DeFi as Lego, so LSDFi has actually created a brand new Lego module. In the view of our guests, LSDFi will be an important driving force for the next bull market, because it has created a brand new money multiplier tool in the industry, which will greatly improve the efficiency of money use. Of course, it also brings a brand new narrative - the most important thing in the Web 3 market, and this new narrative is that derivative assets will replace native assets such as ETH and become the new bottom layer.

LSD profit sources and three major participants in the track

Lido

Operation method: Users deposit money in Lido and obtain stETH, which is equivalent to participating in the pledge of Ethereum. As a platform, Lido recruited 29 white-label node operators around the world through public bidding, and entrusted users' funds to these operators. Recently, they have expanded 5 to 10 new operators around the world. This model has certain centralized disadvantages, but Lido still strives to pursue decentralization, such as considering geographical dispersion for suppliers. The Lido model is similar to a bank - users depositing ETH is equivalent to depositors' deposits, and banks must use depositors' deposits to earn interest, such as lending to other companies to seek higher interest rates. Here, the node operator is the bank lender, and the interest rate difference between the two parties is Lido's profit.

LST interest payment model: Users will of course enjoy the interest of participating in Ethereum staking. Lido’s interest payment model is to pay more stETH to users. In other words, if you hold one stETH today, you can get more stETH as interest tomorrow.

Rocket Pool：

Operation mode: Emphasize the decentralization of the underlying node operation. There are two different roles in the Rocket Pool ecosystem, depositors and node operators. Therefore, RocketPool plays the role of a matching platform, matching depositors' money to node operators. In order to ensure the safety of depositors' funds, Rocket Pool has certain requirements for node operators. They require applicants to have at least 16 Ethereum to apply for node operators. Rocket Pool will match them with 16 Ethereum in the staking pool and package them into a node. Recently, they lowered the threshold to 8 Ethereum. Therefore, Rocket Pool's network can also be regarded as a permissionless network.

LST interest payment model: Its interest payment model can be regarded as an exchange rate model. It does not pay more LST to users, but instead adds the interest to the total pool, making the single LST held by users more valuable. Therefore, the RETH to ETH exchange rate has been climbing above 1.

Frax：

Operation mode: Frax is also a banking model like Lido. Compared with Lido entrusting operations to a third party, Frax prefers to run nodes by itself.

LST interest payment model: Same as Rocket Pool, it is an exchange rate model.

LST yield: Currently, users can mint frxETH with ETH at a 1:1 ratio on the Frx protocol official website, but this is one-way, and Frax cannot redeem it one-way. After getting frxETH, users have two choices: one is to participate in staking to become sfrxETH, and then enjoy the staking income of Ethereum; the other is to deposit it into the Curve frxETH/ETH pool, provide liquidity for Curve, and obtain CurveLP income. Users who provide liquidity for Curve no longer enjoy the income from Ethereum staking, and transfer this part of the income to sfrxETH users. In short, Frax diverts users who participate in dividends, allowing individual users to obtain more dividends.

A new type of stablecoin with natural interest

To some extent, the scale and number of stablecoins are indicators of the prosperity of the industry. Since 2022, the issuance scale of several mainstream stablecoins has been shrinking, which is also considered by the outside world as an indicator of the industry's "deep bear". After LSD became the new bottom layer, it inspired a group of entrepreneurs to mint new stablecoins. Lybra Finance, which currently ranks first in TVL in LSDFi, is a stablecoin project, and Prisma, a stablecoin project cultivated by Curve, is also sought after by capital.

Stablecoins have always been a battleground in the crypto industry.

The engine of the next bull market

The prerequisite for the arrival of a bull market is to have a leverage mechanism that can accommodate large amounts of funds, namely a money multiplier mechanism, and LSDFi just meets this condition.

This is the case with the bull market in 2020. LP refers to a certificate that provides liquidity to market makers, such as uni on Uniswap and SLP on Sushiswap. They are actually market-making tokens issued by the DEX decentralized trading system to market makers. At that time, using this certificate to "mine" was equivalent to using 100 yuan repeatedly as 500 or even 700 yuan. Under some strategies, the annualized return can reach 300%.

LSD Fi is just such a money multiplier tool. In the past, the underlying asset was Ethereum, but now a chain has been added to Ethereum, or a module has been added to the DeFi Lego, which has magnified the efficiency of capital use. At the same time, the yield of 5% to 6% is very stable and risk-free.

Another important condition for a bull market is narrative, and LSD has become the new bottom layer, just in time to prepare a new narrative for the next bull market.

Later, I will bring you analysis of leading projects in other tracks. If you are interested, you can click to follow. I will also organize some cutting-edge consulting and project reviews from time to time. Welcome all like-minded people in the cryptocurrency circle to explore together. If you have any questions, you can comment or send a private message