How LSD Illuminated DeFi Summer Again

introduction

introduction

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DeFi Summer Background

The Ethereum DeFi Summer (Summer of Decentralized Finance) in 2020 is one of the most important milestone events of DeFi, which brought huge liquidity and crazy growth of infrastructure, thus making DeFi today.Behind the crazy growth of DAPP, investors have gained wealth, attracted people to flock to it, and showed the world that defi's blockchain technology can realize the great vision of financial inclusion.

The explosive growth of Ethereum's disruptive DeFi projects ignited the 2020 DeFi Summer. The Ethereum network has once again become the engine of the bull market, bringing unprecedented prosperity and innovation to the encryption market, producing more and more representative projects, such as Uniswap, Curve, Yearn.Finance, Compound, Aave, MakerDAO, etc.

These defi applications use liquidity staking mining, which attracts a large number of investors to participate, stimulating users to pledge assets to the liquidity pool, earning transaction fees and liquidity mining rewards.

DeFi Summer’s liquidity staking mining incentives continued until November 2021, pushing up DeFi’s TVL to $176.2 billion. After reaching historical highs, due to the deterioration of the general environment and economic situation, the endless hacking incidents, regulatory risks and other factors, it is difficult to maintain the popularity of DeFi Summer.

After the DeFi Summer bubble burst, there were truly valuable projects left to change the world. DeFi-related projects still need to continue to baptize and precipitate technology to lay the foundation for the next DeFi Summer. Although the 2020 DeFi Summer is over, we Remember this crazy summer.

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Important players in LSD

Since Ethereum was upgraded to 2.0, the underlying assets of Ethereum have also undergone fundamental changes, which will bring new opportunities and innovations to defi. The applications surrounding the ecological construction of Ethereum 2.0's Liquid Staking Certificate (LSD) are constantly expanding, and they are constantly surpassing the old defi applications. Some old defi applications such as Yearn.finance, Gamma, and Convex Finance are also scrambling to join The LSD track vie for a piece of the pie.

Since the merger of Ethereum, the TVL of the Ethereum LSD ecological application has reached 36.3 billion US dollars, accounting for half of the total TVL of defi. 19,012,429 Ethereum have been pledged (incomplete statistics, as of April 21), and the pledged EHT accounted for 15.92% of the total supply.

As of April 21, 2023, first of all, we can see that only one Lido (decentralized liquidity staking node service provider) has occupied a 40% market share in the LSD staking track, because Lido lowers the LSD threshold for users , pledge 0.0001 ETH to provide services, covering almost all users. According to Defillama.com data (as of April 21, 2023), Lido's TVL has reached 1.17 billion US dollars, leading the LSD market and becoming the top defi.

Second, Coinbas, a centralized staking node service provider, pledged $4.5 billion worth of ETH, accounting for the largest share (16.4%) of the centralized LSD market, second only to Lido. Because the US SEC stated that it would prohibit retail investors from staking cryptocurrencies, and the SEC imposed a fine on the centralized LSD service of the Kraken exchange (because of Kraken’s staking service, it was judged by the SEC to be unregistered securities), Kraken was forced to terminate the staking service , Regulatory operations have seriously affected the market for centralized liquidity staking services, so the growth of Coinbas' LSD has also begun to slow down.

The third is Binance, a centralized pledge service provider. As the world's largest encrypted asset exchange, Binance provides users with simple, convenient and unlimited LSD pledge services by virtue of its huge size and advantages. 7.2%.

Fourth, Lido’s best decentralized LSD service provider competitor—Rocket Pool. Since Rocket Pool has a high staking threshold, and the minimum staking requires 0.01 ETH, it lags behind Lido’s low-threshold strategy in terms of competition. Since the LUNA crash in May 2022, all LSD TVLs have dropped significantly. Rocket Pool TVL bottomed out in June 2022 with only $255 million TVL, and the current TVL has risen to $1.7 billion (as of April 20), an increase of 6.7 times.

Finally, the Frax Finance stablecoin protocol will launch the LSD product - the FrxETH pool in October 2022, achieving significant growth for the protocol. Defillama data shows that in November last year, the FraxETH pool had only $8 million in liquidity pledges. Today, Frax Finance’s FraxETH pool has $296 million in LSD, a 37-fold increase.

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LSD Wave—DeFi Summer

The asset scale of LSD has reached 36 billion US dollars, and the scale of LSD will soon surpass the existing defi scale and reach 100 billion US dollars. The huge LSD assets are giving birth to defi innovations, which will push up the market value of Ethereum, and the bubble will be infinitely enlarged, attracting new gold diggers to join the defi revolution.

In traditional industries, the real estate industry plays a very important role in the financial market, which can be said to run through the entire financial market; LSD can be compared to the traditional real estate industry,Because LSD assets are introduced into defi, derivatives, mortgage lending, structured financial products, etc. can be established around LSD throughout the entire encryption market, so investors holding LSD assets are equivalent to owning a set of high-quality real estate.

LSD runs through the entire encrypted defi market, and real estate runs through the entire traditional financial market. They all play a major role in their respective fields:

1. Capital market:As an important category in the capital market, real estate can provide investors with income in various ways, such as real estate investment trust funds and real estate securitization.

Compared with real estate, LSD also provides investors with rich defi income. Since LSD itself has its own income attributes and securities attributes, holders can pledge LSD to other defi pools to generate more income, such as pledge ETH to Frax Finance generates frxETH, combines ETH/frxETH transaction pair and adds it to the Curve LP pool (earning handling fees), and finally pledges the LP certificate to Convex, and can obtain 3 types of token rewards, handling fees and its own LSD income, total There are 4 payoffs. When these benefits are not met, these certificates can be sold at any time and converted into stable currency benefits.

2. Financial markets:Real estate is collateral for debt in many financial markets, such as mortgages. Home mortgages can be packaged into mortgage-backed securities that can be sold to investors for funds that can be used for other investments.

LSD is an encrypted native income certificate in the defi market, and serves as an important collateral and interest-earning bond in the encrypted market; the interest-earning bond part can sell future income to investors through the LSD native application Dank Protocol and Pendle to improve the utilization rate of funds.

3. Money market:Real estate can also affect the money market. When the real estate market is active, people tend to take out more loans to buy properties, which affects the interest rates in the money market.

LSD assets also affect the entire cryptocurrency market. When the encryption market is active and defi innovation goes hand in hand, people will use LSD assets to revolving mortgage loans, and the funds lent will push up the prices and interest rates of the entire cryptocurrency market.

Compared with real estate mortgage loans, LSD is more convenient. There is no need to go to the bank with the real estate certificate to go through the loan procedures. Waiting for a long review time may miss the best opportunity in the market.

The highest TVL of the first round of DeFi Summer was US$178 billion (according to data from defillama.com). After being devastated by the bear market, the TVL of defi hovered at US$38-40 billion, and then gradually increased, which means that 3-5 times leverage was taken Liquidation (rough calculation: 38 0x 4 = $150 billion TVL, not counting the $178 billion TVL).

The second round of DeFi Summer, with LSD as the underlying income asset, has higher capital efficiency and liquidity, and can create higher leverage multiples. Let's imagine, assuming that the asset size of Ethereum LSD and other LSDs is 200 billion US dollars, 30% of them (60 billion US dollars) will be leveraged 3 times, and 60 billion US dollars will become 180 billion US dollars. Leveraged funds can leverage countless investment opportunities and stimulate the entire cryptocurrency trading market. The native LSD application will also stand out and become the king of the new generation of DeFi.

4. Economic market:The real estate market also has an important impact on the entire economy. The growth of the real estate market is usually accompanied by economic growth, and the decline of the real estate market will lead to economic recession. In addition, the real estate market will also affect prices and consumer confidence.

At this stage, although LSD is not enough to have a significant impact on the global economy, it has received important attention from global financial institutions. LSD, which cannot affect the global economy, has an important influence in the world of cryptocurrency, and the growth of cryptocurrency will be accompanied by LSD.

5. Rental income:Real estate investors earn monthly rental income by renting out their homes to tenants.

LSD asset certificates have their own benefits, so you don’t have to worry about vacancy rates, property maintenance and management fees like houses. As long as you hold LSD certificates, you are collecting rent (income) all the time.

6. Liquidity:Real estate is the favorite investment target of our people, and it is also considered the most reliable investment asset by our people. It is regarded as a family's real estate wealth reserve. Real estate is a large asset investment that requires a large amount of capital. It takes time and expensive procedures to buy and sell. Moreover, the supply and demand relationship in the market is often unbalanced, making buying and selling more difficult and less liquid.

The sale and purchase of LSD certificates has no borders, no permission, and no need to invest millions. As long as your mobile wallet has ETH, you can generate income by pledging it to the LSD pool, which is suitable for investors all over the world. When you don't want to own these LSD assets, you can sell all or part of the LSD assets at any time anywhere in the world. Compared with real estate, it cannot be split and sold, and the flexibility is low. If it is not a high-quality real estate, it is almost impossible to sell in a short time. sell off.

Summarize

Summarize

Now the Ethereum LSD is still in its early stage, and in the future we will see that the Ethereum LSD asset will occupy a leading position and lead the industry to a higher level. This article mainly talks about Ethereum LSD, because the LSD assets of other POS chains are relatively weak in terms of combination and user participation is low, so they do not have more influence than Ethereum. Ethereum's LSD income assets will continue to grow substantially in the next few years, fundamentally changing the entire encryption ecosystem.