With two major upgrades completed by ETH, the LSD born around ETH staking has quietly flourished and gradually become an integral part of the defi ecosystem. However, in this thriving ecosystem, which protocols can thrive and become the towering giants of the future, and which protocols will fade away amidst fierce competition? How can we make logical and informed judgments about the future while navigating the dynamic landscape between the past and the future? These are the questions we will delve into as we seek to understand the entire ecosystem and identify the key players that will shape the future of this ever-evolving and competitive environment.
ETH Staking
Firstly, let us establish a fundamental premise: the entire LSD ecosystem is built upon ETH staking. This implies that the growth potential of the ecosystem is directly tied to the quantity of staked ETH and its capacity for increase. Currently, the LSD track is in a phase of incremental competition rather than reaching a saturation point. This crucial point is the primary reason for our optimism towards this track.
After the Shanghai upgrade，the number of ETH being staked has been rapidly increasing. Currently, the total amount of staked ETH has reached 23million, that is 20% of the total circulation.
According to Top 10 Crypto Assets by Staking Marketcap, in contrast to BNB, which has a staking rate similar to ETH, other chains exhibit significantly higher overall staking rates. According to the data, the average and median staking rates for the top 10 chains by market capitalization:
The average staking rate is 48.4%, and the median staking rates range between 42.79% and 61.34%.
Furthermore, it is crucial to calculate the historical growth rate of ETH staking, taking into account its past performance.
The monthly growth of ETH staking amounts to an average of 900,000. Furthermore, the average monthly growth rate stands at approximately 7.56%.
Based on these findings, let’s consider a final staking rate for ETH of 45%. Utilizing the growth amount and monthly growth rate, we can estimate the following:
Based on the average monthly growth amount, it would take about 37 months (equivalent to 3 years) to reach a staking rate of 45%. By the end of 2023, the staking rate would reach approximately 23%.Alternatively, based on the average monthly growth rate, it would take roughly 11 months (equivalent to 1 year) to achieve a staking rate of 45%. By the end of 2023, the staking rate would reach approximately 30%.
These figures give us a reference point indicating that the staking volume of ETH is likely to continue growing in the foreseeable future, at least within the next year. This growth serves as a catalyst for the expansion of the entire ecosystem, enabling it to thrive in tandem with the increasing staking volume.
Ethereum Staking map
The LSD ecosystem operates with protocols that extend across the upstream and downstream sectors, providing services and engaging in competition. In the following analysis, we will examine the competitive landscape and potential future trends of each sector, starting from the upstream and moving towards the downstream.
Upstream
Distributed Validator Technology(DVT): ssv.network, Obol Network, Diva
ssv.network — Already launched
ssv.network is a decentralized staking infrastructure that provides simple and scalable access to decentralized ETH staking. It allows anyone to participate in the staking process easily.
Obol Network — Not yet launched
Obol Network is an Ethereum Proof-of-Stake consensus protocol and ecosystem. Its mission is to eliminate the risk of single point of failure on Ethereum through Distributed Validator Technology (DVT). Obol aims to make main-chain staking more scalable and accessible by offering permissionless access to distributed validators.
Diva — Not yet launched
Diva is an Ethereum liquidity staking protocol that operates on a fully distributed network of validators. It is designed to be resistant to censorship and disruptions. The network leverages distributed validation technology by utilizing a consortium of bonded node operators to fulfill staking responsibilities in an unhosted model.
ssv.network
SV Network has successfully developed an operator network based on DVT, making it the fastest progressing product in DVT . SSV Network is the only entity currently issuing tokens, with its token, SSV, primarily serving as a means of payment and governance credential within the network. Participants in staking on the SSV network are required to pay operational fees to node operators, with the specific fees determined by each operator based on their operational costs and market competition. Additionally, operators are presently obligated to allocate 1/4 of their network revenue to the SSV treasury (with fee standards determined by DAO), and all of these payment processes must use the SSV token.
Token Marketcap Fully diluted market cap total dao treasury value mcap/tdtv ssv 184m 203m 11m 16
SSV DAO treasury
In conclusion, SSV Network has a distinct advantage as the exclusive token issuer in DVT . Being the upstream protocol in the LSD ecosystem, its demand is set to grow in tandem with the increasing staking activities in the LSD track, leading to an increased demand for its token.
Midstream
In the midstream, various liquidity staking protocols are the key players.
Market Share of liquidity Staking Protocols
Conclusion: LDO stands indisputably as the frontrunner in the decentralized liquidity staking space, leading the way in terms of collateral amount, market share, and reputation. Furthermore, its current valuation based on FDV/TVL and MCAP/TVL data is relatively low.
Downstream
The downstream market offers a diverse array of products, including lending platforms, decentralized exchanges (DEXs), leverage trading tools, yield aggregators, and various other products such as re-staking options.
Lending
Protocols like Aave represent the lending market that caters to the demand for leveraged trading using lsdEth. It allows users to increase leverage through margin lending and increase the risk-adjusted return of their portfolio by borrowing stablecoins against lsdEth collateral.
Dexes
A protocol built on lsdEth liquidity. It mainly relies on the crv and balancer ecosystems. While crv has a larger market share, it incurs higher costs compared to balancer.
Derivatives
Gearbox
Gearbox is a composable leveraged protocol that enhances capital efficiency within DeFi through a novel DeFi protocol called a credit account. The credit account is an isolated smart contract with predefined whitelist parameters such as liquidation thresholds and approved tokens. It contains user funds and borrowed collateral, can be deployed on any DeFi protocol, and is noncustodial, ensuring users retain ownership of their assets. All operations are carried out through the credit account, enabling users to seamlessly navigate the DeFi ecosystem and engage in leveraged interactions with any chosen protocol.
Gearbox V2 has been launched, allowing for composable leverage and interaction with DeFi protocols such as Uniswap, Sushiswap, Curve, Lido, Convex, Yearn, and more.
LSDFi
LSDfi is centered around lsdETH as a floating yield-bearing asset and revolves around financial derivatives such as principal and interest separation and interest rate swaps. Principal and interest separation products allow for shorting future yields (selling interest tokens to buy principal tokens with low leverage, typically used to lock in profits in advance), longing future yields (selling principal tokens to buy interest tokens with high leverage, typically catering to speculative demand), and yield enhancement.
Based on this use case, many innovative protocols are expected to emerge.
Asymetrix
Asymetrix is an asymmetric staking reward distribution protocol. Assuming 100 users each deposit 1 ETH into the Asymetrix smart contract, a total of 100 ETH is pooled. Over time, these 100 ETH generate an additional 5 ETH as staking rewards. Asymetrix collects these 5 ETH and distributes them to a single user in a provably fair manner. All 100 users retain their initial deposit of 1 ETH, but some users receive 0% staking rewards while the winner receives 500%.
Sense
Sense is a decentralized permissionless infrastructure where teams can build and develop new yield primitives for DeFi, such as fixed-income tokens, yield tokens, and other custom reconfigurations of existing tokens for risk exposure. The first application built on Sense is Stripping, where users can access fixed-rate versions of existing variable yield tokens or take directional long/short bets on future yields of existing yield assets.
Element
Element Finance is a decentralized financial protocol that allows users to seek high fixed income in the DeFi market. Users can access discounted assets and underlying assets within the ecosystem and existing automated market makers (AMMs) without locking periods, enabling trading of discounted assets and underlying assets at any time. Fixed-rate income can be obtained by trading any major underlying assets. The Element protocol does not require trusted intermediaries and enables efficient trading of fixed and variable yields.
Element addresses these two issues as a layer above the yield farm protocol. It works by separating the principal and staking yield into two independent tradable tokens: principal tokens and interest tokens. At the end of a set term (e.g. 3 or 6 months), each of your principal tokens can be redeemed for the corresponding share of the initially staked principal, while your interest tokens can be redeemed for the yield generated on the principal during the same period.
Restaking
The concept of re-staking is introduced by Eigenlayer. Eigenlayer is a protocol that modifies the Ethereum base client to allow validators to re-stake their ETH holdings and simultaneously validate other protocols such as oracles and data availability modules. It is important to note that Eigenlayer provides a second layer of yield for staked ETH but sacrifices some token liquidity while requiring users to bear additional security risks, adding a layer of risk of confiscation for Restaked ETH.
Yield Aggregation
Yearn is expected to introduce yETH to enter the lsd race track.
Summary
The LSD , being an integral part of the DeFi ecosystem, provides opportunities for innovative protocols and diverse use cases. As the DeFi space continues to evolve, we can anticipate more groundbreaking protocols and further expansion of the LSD. It is crucial to stay ahead of the curve and identify the most promising protocols to invest in for long-term success.
By Archimonde & Lizzie Lu
About ZMQ
ZMQ is a Leading Global Quantitative Market Maker and liquidity provider in Digital Assets. Since jumping into the crypto market in 2018, ZMQ has been focusing on providing liquidity globally for token projects and exchanges, institutional crypto investments and consulting services to bring better price discovery, trading executions, transparency to investors and efficient pricing to the market.
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