Can Liquid Staking Derivatives ensure liquidity enhancement for investors?
The concept of derivatives seems to have crossed the threshold of stocks and bonds, as decentralised finance (DeFi) has entered the field. Liquid Staking Derivatives (LSDs), which permit token staking in a DeFi protocol, carry the potential to be the next big form of investment. “I believe LSDs allow users to access their staked funds while earning staking rewards. The liquid tokens can be traded or leveraged. The users can also use LSDs as collateral in lending protocols,” Ankur Grover, CEO, Zoksh Pay, a crypto payments solution, told FE Blockchain.
From what it’s understood, LSDs allow users to gain access to more liquidity, in comparison to traditional staking. According to Datawallet, a decentralised marketplace, LSDs can enable investors to earn yield without the need to pay attention to lock up time, along with appreciating the staked assets’ value. The marketplace also stated that Ethereum is considered as a popular network for such investments, along with Solana and Avalanche also providing LSD-based services. Reportedly, platforms which provide LSD facilities using Ethereum include Lido (stETH), Rocket Pool (rETH), and StakeWise (SETH2).
“I think users who utilise LSDs can take advantage of yield opportunities within the DeFi sector. For instance, they can explore yield prospects on lending platforms by depositing their derivative tokens or utilising them as collateral to borrow assets for additional market engagements,” Siddhartha Gupta, SVP – business and strategic alliances, CoinDCX, a crypto investment application, mentioned.
It’s believed that post the Ethereum Shapella upgrade, liquid staking has witnessed an upward trend. CoinGecko, a cryptocurrency data aggregator, highlighted that Lido’s liquid staking reached a high of over $12 billion in total value locked (TVL). As per Nasdaq, an American stock exchange, Lido holds the top position in the LSD market, as it issues stETH in return. Market projections have shown that stETH constitutes for roughly over 70% of the total LSD market. Furthermore, StakingRewards, a crypto data provider, provided that 14.87% of the total Ether (ETH) supply in circulation is currently staked.
Data from CoinMarketCap, a crypto-price tracking website, stated that as of July 14, 2023 (14.43 pm, Indian Standard Time), LSDs are priced at close to $0.064, at a nearly $269,000 worth market capitalisation. With regard to number of tokens permitted for Ethereum staking, Shrimpy, a cryptocurrency portfolio management tool, emphasised that 32 ETH minimum can be staked on the blockchain. Moreover, LSDs can create avenues for more investors to take advantage of staking and earn rewards. However, liquid staking-based returns might be lower in comparison to regular staking, as per Bybit Learn, a cryptocurrency learning platform.
“Looking beyond 2023, future of LSD remains uncertain. LSDs should continue to evolve due to technological advancements, regulatory developments and market dynamics. It is considered important to approach LSD investments with caution, do research and consider risks associated with market volatility and uncertainty,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange, concluded.
