Preon: DeFi’s Zero-Interest LSD Hub
One Small Step For the Ecosystem; One Large Step for Sphereans!
Hey Sphereans!
The launch of the Sphere Ecosystem’s new and innovative protocol, Preon, is imminent.
In preparation, we want you to have all the essential information to maximize your potential gains from Preon’s unique utility.
And the closer we get to launch, the more insights will be revealed on how you, as a Spherean, can benefit.
Without further ado, let us begin.
What Is Preon?
Preon is a revolutionary CDP lending protocol that is part of the Sphere Ecosystem’s suite of solutions disrupting the DeFi space. It also incorporates some elements of yield farming and concentrated liquidity, with unique tokenomics and synergies.
To get the full scoop on the Sphere Ecosystem’s innovative new addition to its suite of solutions, we encourage you to listen to our Preon AMA recap on YouTube, courtesy of the legendary Price Time.
Now that we have a better understanding of what Preon is, let us explore a particularly unique use case — LSD leveraging.
What Are LSDs?
Liquid staking derivatives (or LSDs) have become increasingly popular in the world of DeFi. Interest in LSDs has skyrocketed, and many protocols are beginning to explore this unique avenue.
In order to understand the intersection of liquid staking and DeFi, known as LSDfi, we need to first understand what LSDs are and what they do.
To do that, it is crucial to begin with a fundamental understanding of how blockchains work, using Ethereum as our base example.
Ethereum Essentials: The Beginning
Ethereum launched publicly in July 2015 with a proof-of-work (PoW) consensus mechanism where users had to use computing power to mine Ethereum in order to submit new transactions to the network.
That completely changed in 2022 with the transition to a proof-of-stake (PoS) consensus mechanism. Now, users must stake $ETH on a validator node which, in turn, submits new transactions and secures the network.
In exchange, $ETH stakers are rewarded with their proportional share of all of the $ETH transaction fees that occur on Ethereum mainnet.
Currently, staking $ETH yields around 5% APR distributed in claimable $ETH.
This is a sustainable and secure way to earn yield on $ETH. However, one of the drawbacks of validator nodes in general is that there is often a high barrier to entry, and in this case you would need 32 $ETH to activate your own validator — an extremely steep price for the majority of users.
But that is not where the conversation ends.
This is where LSDs such as Lido’s $stETH and Rocket Pool’s $rETH come in as potential solutions to the problem.
These are open-source, peer-to-system softwares for validator node staking. Users can go to either protocol, stake their $ETH, and receive their respective LSDs in return.
In essence, LSDs are the liquid-staked derivatives of $ETH. Both $stETH and $rETH are liquid tokens and can be used in liquidity pools and swapped freely. Their value is derived from the underlying $ETH held in the protocol that is being staked and is earning rewards within Ethereum’s proof-of-stake consensus system.
The resulting proof-of-stake rewards increase the value of the LSDs relative to the value of $ETH.
Essentially, in turn, LSDs expand access to allow all users the ability to benefit from the returns of proof-of-stake, significantly lowering the barriers for entry.
How Does Preon Factor In?
Now that we know and understand what LSDs are, this concept can then go a step further.
It was mentioned above that LSDs can be freely used in liquidity pools and swapped. This adds another layer of yield potential for users.
Take $stETH for example. Another version is $wstETH or wrapped-staked-ETH.
This can be combined together into an LP position with $wETH and/or other $wETH derivatives such as boosted Aave v3 $wETH, which is also yield-bearing. This can be done on different protocols such as Balancer, where the LP tokens are called Balancer pool tokens or BPTs.
This is an expansive explanation to illustrate a simple point: that liquidity providers now have a way of earning additional yield on top of the yield-bearing nature of the LSDs in the context of an LP position that has minimal impermanent loss.
And yet another further step can be made to amplify the yield of these LSDs.
This is where Preon Finance comes in.
Preon, the Sphere Ecosystem’s ground-breaking CDP protocol with ve(3,3) tokenomics coming soon first to Arbitrum and then expanding multi-chain.
Preon will be the first protocol to offer 0% interest leveraging of Balancer LSDfi tokens such as $stETH BPTs and $rETH BPTs.
This will allow users to substantially deepen their exposure to LSDfi through zero-interest leveraging with absolute ease.
Now, it is important to be aware that leveraging comes with additional risks including the risk of liquidation. Do not make any decisions concerning your capital without doing your own research prior.
Additionally, on the note of safety, Balancer has audited Preon’s code themselves, and Preon has been audited by Dedaub who has provided security solutions to the world’s leading Web3 projects including Chainlink, Ledger, Yearn, and the Ethereum foundation.
What Does All This Mean for Sphereans?
Preon Finance is part of the Sphere Ecosystem which means that Preon will contribute to the value of the $SPHERE token and to the ecosystem as a whole.
Interest in the Sphere Ecosystem should increase from the desire to receive returns in significant assets. The higher the APR, the larger the number of interested parties.
As the first protocol to offer 0% interest leveraging of Balancer LSDfi tokens, this represents a high-interest revenue source for Sphere Finance, which increases the amount of returns paid out. This effect is amplified even further considering the synergistic effect that Preon has with other protocols.
Every new protocol under the Sphere Ecosystem umbrella using a service increases revenue. Simply releasing these products is not the end to the increase in revenue: it is just the start.
Either that increase in return compounds exponentially, or (more likely) interest grows organically over a longer period of time, and interested parties seek a share of the returns through buying and putting their tokens to use, which continues until a certain plateau in intrigue is reached.
That plateau is at a new set point for the Ecosystem, where it is more expansive, with a wider suite of solutions operating together with seamless integrated synergies, generating even more revenue. As more revenue is added, the cycle of increasing user intrigue is repeated.
If you liked this article, then you will love the video version of it, made courtesy of the Sphere TV legend himself, Price Time.
Excited for Preon and interested in learning more, including how to secure a whitelist spot and presale details? Visit us on Discord to stay up-to-date on announcements and join our community.
Thank you for reading — stay epic, Sphereans!
