Triwizard competition on the LSD track: Who should I choose for Shanghai upgrade?

Original title: "The Liquid Staking Wars Are Just Getting Started》

Compilation of the original text: Deep Tide TechFlow

Original title: "

Compilation of the original text: Deep Tide TechFlow

After more than a year of decline, we finally got a token pump. And, you may have noticed that some of the top performing coins like Lido (LDO) and Rocket Pool (RPL) are related to Liquid Staking Derivatives (LSD).

What exactly are LSDs? Does this narrative make sense?

LSD is a way for Ethereum (ETH) stakers to have their cake and eat it.

Now that Ethereum is a Proof of Stake (PoS) chain, you can stake your ETH for a comfortable, steady yield of around 4-6%. Sadly, staked tokens cannot be used elsewhere.

I know, this kind of single digit APY is a bit boring, but, don't worry, LSD allows you to put ETH into a smart contract and receive tokenized derivatives of that pledged ETH in return.

Will the LSD narrative continue?

Our view is, yes.

This is because despite Ethereum’s dominance, staking ETH is still considered a risk as users currently cannot withdraw their staked tokens."Musical Chairs "Do you know what the typical pledge ratio of a PoS chain is? According to Staking Rewards, between 40-70%. While Ethereum’s pledge ratio is only 13%.

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In April 2021, LSD began to outperform other staking solutions. By the time Ethereum successfully switches from PoW to PoS (merged) in September 2022, they will already be at the top of the food chain.

Analysis of the advantages and disadvantages of the three LSD giants Lido, Frax and Rocket Pool: Shanghai's upgrade heat wave hits, who should I choose?

I've (hopefully) convinced you that LSD is a story that's not going away, so let's get down to business and examine some of the most popular liquid staking solutions.

competitor

Analysis of the advantages and disadvantages of the three LSD giants Lido, Frax and Rocket Pool: Shanghai's upgrade heat wave hits, who should I choose?

therefore,Since we are only focusing on protocols with governance tokens, we will not discuss Coinbase. While Stakewise has had some early success, its adoption has stalled, so we’re leaving it out of our discussion today.

• Lido (LDO)

therefore,

The three protocols that we believe stand to benefit most from LSD's narrative are Lido, RocketPool, and Frax.

The leader of LSD is Lido. In the LSD protocol, up to 30% of the pledged ETH and more than 70% of the ETH are located in Lido.

Lido is set up as a decentralized autonomous organization (DAO), and LDO is the "membership card" of the DAO.

LDO holders can vote on some aspects related to the operation of Lido, such as the fees that the DAO should receive, or what node operators and oracles Lido uses. DAOs also accumulate profits, which will be distributed to R&D, liquidity incentives, etc.

However, LDOs do not accrue any value to token holders. So it's more of a speculative bet on LSD's success and Lido's continued dominance.

Not that there's anything wrong with that. Sometimes, a token that relies solely on narrative is the best option.

Arguably, the best-performing industry in the 2021 bull market is Memecoin. And Uniswap's UNI, whose structure is similar to LDO, is one of the best performing DeFi tokens. Until the cryptocurrency market matures, memes and narratives are king. We better not forget this.

• Frax (FXS)

However, if you want to earn a share of the DApp profits from your token holdings, you will have to look elsewhere.

Frax is a newcomer, at least when it comes to LSD. But its growth has been phenomenal, becoming the fifth largest LSD solution by ETH in just three months. This is all the more impressive considering we are in the midst of a bear market.

Analysis of the advantages and disadvantages of the three LSD giants Lido, Frax and Rocket Pool: Shanghai's upgrade heat wave hits, who should I choose?

An important reason for Frax's rapid success on LSD is that it has implemented a series of DeFi products, including stable coins, lending markets, decentralized exchanges, etc. Additionally, it leveraged its influence on Curve to provide its users with substantial ETH yields.

So, how does Frax's governance token, FXS, work?

Frax implemented a veToken model through FXS, similar to Curve's model.

Frax token holders can lock their FXS in exchange for veFXS: the longer they hold, the more veFXS they get. The more veFXS you own, the higher your yield boost, voting rights and profit share.

At the time of writing, if you lock your FXS for four years, the current APR is 1.58%. Not great, but better than nothing. And completely profit-based and sustainable, which is very rare in cryptocurrencies.

• Rocket Pool (RPL)

LSD is just one of their products, and (currently) not their core product. Thus, FXS is not betting purely on the success of LSD, however, since Frax's products are intertwined, if one fails, the others may fail as well.

In other words, the success of the agreement is also closely related to LSD.

Launching in November 2021, Rocket Pool positions itself as the LSD solution for the masses, as opposed to venture-backed Lido. Whether or not that description holds true, the reality is that Rocket Pool has indeed managed to capture more than 5% of the market.

We won't get into the details of Rocket Pool's staking mechanism. The most important thing for us now is:

Rocket Pool node operators are rewarded in ETH (from staking earnings) and RPL (from Rocket Pool inflation).

Node operators must provide collateral along with their ETH. This collateral acts as insurance if node operators are slashed.

Guess what these collaterals are denominated in?

That's right, it's RPL. The more RPL you post as collateral, the higher the RPL rewards you get.

To prevent RPL whales from getting most of the rewards, you can provide up to 150% of the value of ETH that users have staked. But there is also a 10% minimum collateral to get any RPL rewards. These act as soft upper and lower bounds for the RPL price relative to ETH.

If the value of RPL increases too much, node operators will withdraw collateral from their vaults because they are not rewarded for exceeding the 150% cap. There wasn't much they could do with RPL at the time other than sell.

However, if the price of RPL drops too much, node operators will need to purchase and issue more RPL as collateral in order to continue receiving RPL rewards.

In effect, this model stimulates demand for RPL based on ETH staking activity, tying the success of the token to the success of its staking solution.

choose

So which LSD governance token has the most potential?

If you want to play it safe, the answer is simple: LDO.

Lido is way ahead of the pack in the LSD field. More importantly, it wins the narrative.

When thinking of LSD, the first protocol that comes to mind is Lido. This is also the first choice for most people to pledge ETH. Lido's stETH is synonymous with pledged ETH.

But tokens do not accumulate any value.

so what?

If DOGE breaks $1, a useless governance token can make you rich too.

If you want to play a bit more adventurous, FXS is the coin you should be looking at.

Note, not for value accumulation. Low single digit APY in exchange for locking up my tokens for 4 years? I don't think I will. FXS is a great pick right now because it's growing at an incredible rate.

However, betting on Frax means betting on all of its DeFi sectors, and their success is by no means guaranteed. So it's a riskier but potentially more profitable bet.

Rocket Pool has achieved a great deal of success. However, RPL is not currently an attractive bet. Rocket Pool is nowhere near catching up to Lido, and it's not growing as fast anymore.

If this situation changes, we will change our views.