In the midst of a downtrend in the decentralized finance (DeFi) market, the hot growth of Liquid Staking Derivative Finance (LSDfi) platforms has garnered significant attention from investors and is expected to revive the potential of DeFi in the near future.
According to analysts at Glassnode, decentralized finance activities have experienced a severe decline, while protocols face competitive pressure from Ethereum’s annual staking rewards of 4%. Meanwhile, LSDfi has emerged as a new trend with the potential to revitalize Ethereum’s network activity.
Recent reports from Glassnode have shown a decrease in the gas consumption ratio by DeFi protocols from 34% in 2020 to the current range of 8% to 16%. Among these, NFT transactions account for 25-30% of the total gas fees.
Furthermore, blue-chip DeFi projects such as Uniswap, MakerDAO, Aave, Compound, Balancer, and SushiSwap have witnessed an 88% decline in market capitalization since reaching an all-time high of $45 billion in May 2021. As a result, many prominent coins/tokens from DeFi projects have underperformed even during the slight market recovery at the beginning of 2023.
Currently, leading lending protocols like Aave and Compound offer yields of 2-3% when users borrow stablecoins and ETH on their platforms. Some analysts argue that DeFi protocols may come with smart contract risks. However, these risks could be mitigated by the implementation of proof-of-stake validation.
Staking has become popular among Ethereum investors, especially after the completion of the Shapella upgrade, which gradually unlocked staked ETH for user withdrawals. By the end of May, the amount of staked ETH reached 21.63 million (worth over $40 billion), accounting for 18% of Ethereum’s total supply.
Recently, LSDfi has emerged as a new trend that has attracted the attention of many investors. These are DeFi platforms built on the Liquid Staking Derivative (LSD) protocol, aiming to introduce new applications for liquid staking tokens.
LSDfi leverages the liquidity of LSD tokens and trading liquidity on exchanges to generate higher yields. Many analysts believe that LSDfi has the potential to revive DeFi activities through a significant amount of ETH staked on LSD protocols.
According to data from Dune Analytics, the Total Value Locked (TVL) of LSDfi protocols has reached $411 million, experiencing exponential growth since mid-May. Some prominent projects in this emerging field include Pendle Finance, Lybra Finance, Curve Finance, and Alchemix Protocol.
Among these, the value of LSD tokens on Curve Finance, a leading stablecoin trading platform, has surpassed the $1.5 billion mark. Additionally, Curve allows the minting of stablecoin crvUSD (CRVUSD) collateralized using Frax Ether (SFRXETH) staked by the Frax Protocol.
Many industry experts believe that these new applications can help tap into the liquidity potential of LSD tokens, resulting in substantial profits for users. However, these protocols may also face risks associated with smart contracts and rug pulls.
Source: https://azcoinnews.com/how-lsdfi-platforms-are-revamping-the-defi-landscape.html
